Download The Effects of Population Growth on Economic

Vol. 4 [2007]
Brussels Journal of International Studies
1
The Effects of Population Growth on Economic Performances in China
and India
Brandon Lozeau1
Economic performance and population growth are expressly linked and China and India
are the two most populated nations in the world. While a large population might translate
to having a large labour force, several key economic factors have contributed to how the
Chinese and Indian populations have grown and what differing effects that growth has
had on their developing economies. This essay aims to highlight some of the very
important differences in the population growth rates of these two Asian states and how it
might explain the variation between their economic development and performance. This
essay will not only touch upon the pure economic data, but also find a place for political,
cultural, and sociological links between the following: per capita income, fertility rates,
technological advancement, education, population control policy, and government
intervention.
Population growth can have several effects on the economic expansion and
performance of a country. China, with 1.32 billion people, and India, with 1.1 billion
people, together are home to almost two and a half billion people on a planet with almost
six and a half billion inhabitants. 2 Though they each enjoy the same factor endowment,
namely a large labour force, several key economic factors have contributed to how the
Chinese and Indian populations have grown and what differing effects that growth has had
on their developing economies. This article will concentrate on some of the important
differences in the population growth of these two Asian states and how they might explain
the variation between their economic development and performance. While a brief article
will not entail all economic measures and factors linking population and economic
performance, this article will touch upon links between the following: per capita income,
fertility rates, technological advancement, education, population control policy, and
government intervention.
Much of the original foundation for studying the economic effects of population
growth stem from the writings of Thomas R. Malthus (1766-1834). The Malthusian model
highlights two main ideas. “The first is the existence of some factor of production, such as
land, which is in fixed supply, implying decreasing returns to scale for all other factors.
The second is a positive effect of the standard of living on the growth rate of
1
Brandon Lozeau attended the University of Massachusetts at Dartmouth as an undergraduate majoring in
political science and French with a minor in economics, and receiving a certificate in international
marketing. Studying international political economy at the Brussels School of International Studies, he has
taken a great interest in economic and sustainable development in the developing world.
2
Chinese population figures come from the China Population and Information Research Center (CP IRC)
(http://www.cpirc.org.cn/en/eindex.htm. Accessed: 25 April 2008) while the Indian figures are taken from
the Population Reference Bureau (PRB) (http://www.prb.org/. Accessed: 25 April 2008).
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population.”3 Economic growth rates in China, according to the Asian Development
Bank’s Country Economic Review (CER) done in 2002, have featured in the 7-8% per
annum range, which has led to an unprecedented rise in the standard of living for millions
of Chinese.4 India’s CER published a steady rise to around 6% annual growth for 2001. 5
While this outstanding growth has brought enormous benefit to citi2ens of both countries,
India and China have fallen into the “Malthusian Population Trap.”6 When population is
low the standard of living is higher but, “When population si2e is large, the standard of
living will be low, and population will be reduced by either the ‘preventive check’
(intentional reduction of fertility) or by the ‘positive check’ (malnutrition, disease, and
famine).”7
The “preventative” check of which Malthus spoke, the intentional reduction of
fertility, is commonly seen as one of the keys to subsiding population growth for the
future. There are several economic factors that are linked to fertility rates, such as
technological advancement and increased levels of education. In developing countries
children are often seen as an economic asset, a tool to help increase agricultural
production and also to ensure that a caregiver exists when parents get older. “Demand or
need for large numbers of children is driven down by improvements in living standards
and child survival and by the moderni2ation of economies.”8 The movement away from
agricultural production and into more modern industries in the manufacturing and
services sectors negates the necessity to have large numbers of children. In examining the
employment construct of the Chinese versus the Indian work force, one will notice that
the Chinese economy is the more modern of the two. Using 2003 estimates, 49.1% of
Chinese were employed in the primary sector, with 21.6% working in the secondary and
29.3% in the tertiary sectors.9 Comparably, in India the primary sector is responsible for
60% of employment, with the secondary and tertiary sectors accounting for 12% and 28%
of employment, respectively.10 The large agricultural presence in the Indian economy
partially explains why higher fertility rates pervade the population, due to needing
children to help with family agricultural plots.
3
Galor, Oded and David N. Weil. “Population, Technology, and Growth: From Malthusian Stagnation to
the Demographic Transition and beyond.” The American Economic Review, Vol. 90, No. 4 (2000), p. 807.
4
Asian Development Bank. www.adb.org/documents/CERs/PRC/CER_PRC_2002.pdf. 2002. Accessed: 1
May 2008. Various economic reports since 2002 have listed economic growth anywhere from 7-11.5% per
annum.
5
Asian Development Bank. www.adb.org/documents/CERs/IND/2001/ind_2001.pdf. Accessed: 1 May
2008. Figures since 2001 have shown Indian economic growth anywhere from 5.5-9.4% per annum.
6
The Malthusian Population Trap refers to the tendency for population to grow at a geometric rate while
food production increases at an arithmetic rate. There are decreasing returns to scale on the fixed-capital
(land) as population grows.
7
Galor, Oded and David N. Weil, op. cit., p. 807.
8
Cleland, John. “Population growth in the 21st century: Cause for crisis or celebration?” Tropical Medicine
and International Health, Vol. 1, No. 1 (2006), p. 21.
9
Chinese Government’s Official Web Portal (www.english.gov.cn/official/2005-07/28/content_17992.htm.
Accessed: 1 May 2008). Primary sector refers to industries in agriculture and other natural resources, while the
secondary sector entails manufacturing and construction, and the tertiary sector encompasses services.
10
Central Intelligence Agency, www.cia.gov/library/publications/the-world-factbook/geos/in.html.
Accessed: 1 May 2008. These estimates are also from 2003.
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Though India and China have almost similarly sized populations, it is the
technological progress of the Chinese that has allowed them to better sustain the
population growth of the last few decades and increase their per capita income. Without
this important technological progress a rise in the standard of living becomes very difficult
and sustaining high population growth becomes more challenging:
“During this Post-Malthusian Regime, the Malthusian mechanism linking higher
income to higher population growth continued to function, but the effect of higher
population on diluting resources per capita, and thus lowering income per capita,
was counteracted by technological progress, which allowed income to keep
rising.”11
According to Galor and Weil, now that the Chinese have moved into a majority
manufacturing and services based economy they will be able to continue to increase per
capita income. If the Indian government can create and manage a transition to an
economy based on manufacturing, services, and technological advancement, then
incomes will rise as a result and fertility rates will fall. Due to population control
policies in China, which will be discussed later in this article, the Chinese labour force
will reach a peak and then begin to shrink causing a slowdown in Chinese economic
growth. Barlow argues that the kind of economic growth seen in China is not sustainable
because of this lagged fertility rate.12 The “one-child” policy implemented in China
since 1978 has contributed to a low current fertility rate, while before the policy was
implemented the fertility rate was 5.75, which has contributed to high lagged fertility. 13
Barlow explains that low current fertility will eventually translate into low lagged
fertility which, in turn, will mean a slowdown in economic expansion. “If current
fertility is low, lagged fertility will eventually reach a low level and an important source
of economic expansion— namely, rapid growth of the labor force—will disappear.”14
Since India’s rate of population growth has remained higher than that of China, the
Indian labour force will eventually outnumber the Chinese possibly keeping wages
lower in India and thus making it a more attractive host for industry. This is promising
for India as it may indicate a transition to a more manufacturing and services oriented
economy in the near future.
Education level is also shown to have a positive correlation with gross domestic
product (GDP). With regard to China and India however, within the sphere of education, it
is the gender gap in education that has hurt economic growth in the latter. As
technological progress can keep per capita income on the rise, maintaining a high
11
Galor, Oded and David N. Weil, op. cit., p. 808.
Robin Barlow has conceived this notion of lagged fertility and operationali2es it as such: (1) in the short
run, an increase in fertility tends to have negative effects on per capita income growth; (2) in the long run, its
(partial) effects tend to be positive; (3) because current fertility is highly correlated with past fertility,
current population growth rates capture both the short-run negative and the long-run positive effects; (4)
hence in a two variable correlation, current population growth appears to have a 2ero impact on current per
capita income growth, even when it really has a negative short-run effect.
13
Shen, Jianfa. “China’s Future Population and Development Challenges.” The Geographical Journal, Vol.
164, No. 1 (1998), p. 33.
14
Barlow, Robin. “Population Growth and Economic Growth: Some More Correlations.” Population and
Development Review, Vol. 20, No. 1 (1994), p. 157.
12
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commitment to education, especially for women, can have a similar effect. “South Asia is
the region where, apart from Sub-Saharan Africa, girls’ education lags most severely
behind boys’. Gender differences in primary level enrolment range from 15 to 50
percentage points.”15 East Asia (which includes China) “has the fastest economic growth
rate and highest education level of any third world region”16 and can be partially
attributed to more equal enrolment in school among males and females. “The education
gender gap is relatively low and women comprise larger share of labour force than in any
other third world region...”17 which is a testament to the importance of gender equality in
education.
Education also ties into fertility rates, per capita income, and technological
advancement, which underlines the truly interconnected nature of these social factors.
“Not surprisingly, certain indicators of advanced development are consistently correlated
with low rates of fertility: high rates of literacy, high per capita consumption of energy,
high rates of urbani2ation, low rates of infant mortality, high per capita income.”18 This
acknowledgement of the intricate relationship between these factors underlines the
necessity for any governmental policy or action to be taken in a multi-pronged approach.
“No one intervention can be expected to affect fertility in a simple downward direction:
the relation between each variable and fertility is complex, as are the relations among
these variables and their joint effect on fertility.”19 Higher education levels for women
mean that there is a larger pool of skilled labour which will push for greater industrial
development. If the Indian government invested as heavily as the Chinese in primary and
secondary education, then it would be foreseeable that more rapid industrial transition and
economic development would occur. As Birdsall argues, an increase in education level
translates into an increase in per capita income which has a negative correlation with
fertility rates. “Any success in increasing incomes of the poorest groups is likely to have
fertility-reducing benefits; this includes increasing availability of services in health and
education to those groups.”20 That is to say that any increase in education for a woman
leads to a corresponding decrease in her fertility rate.
Higher education levels for women also lead to the delay of marriage, which
would then, presumably, lead to a decrease in fertility as well. Education is meant to be
more than just enrolment levels in primary, secondary, and higher educational institutions.
Education also refers to family planning resources which has a direct and obvious effect
on fertility rates. Population growth can be curbed by strategic investments by the state in
family planning services and education. In fact, some economists have argued that it is
one of the most significant investments for a developing country. In referring to the work
of Stephen Enke, Birdsall talks about his estimated value of “prevented birth” and the
return on investment in family planning services. “He
15
Baden, Sally and Cathy Green. “Gender and education in Asia and the Pacific.” BRIDGE (development
— gender), Institute of Development Studies, University of Sussex, UK, (1994), p. 9.
16
Ibid, p. 9.
17
Ibid, p. 10.
18
Birdsall, Nancy. “Analytical Approaches to the Relationship of Population Growth and Development.”
Population and Development Review, Vol. 3, No. 1/2 (1977), p. 82.
19
Ibid, p. 91.
20
Ibid, p. 91.
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used his estimate to compare the return from traditional development spending to the
return from spending on family planning that was 100 to 500 times more effective than
spending on other development projects.”21 Lowering fertility rates is not the only
benefit of educating women obviously. More education means a more productive
labourer which has a direct effect on economic growth. Baden and Green note that the
higher rates of economic and technological growth in East Asian countries are “in part a
result of their relatively high levels of education and growing pool of post-primary
educated workers.”22 The higher education levels attained by women in China versus the
very low levels attained by women in India may account for a very large opportunity
cost.
One might be able to argue that the “one-child” policy in China has had more than
just the intended effect of lowering fertility rates. In fact, combined with increasing per
capita incomes due to rapid urbanisation in the last few decades, this policy has helped to
build an even more educated future workforce. Through investments in education, health,
and commodities associated with higher standards of living, Chinese parents are now
ensuring that the next generation of the work force is highly skilled in an increasingly
technologically savvy economy. “The advent of modern schooling raises the cost of
childbearing and removes children from productive activities. It becomes possible for
parents to invest in their offspring and to substitute quality for quantity.”23 The complexity
and interconnectedness of all these variables on population growth and economic
development draw attention to the mammoth task facing governments in many developing
countries. This task necessitates a government that is in a position to make substantial and
lasting reforms, policies, and sacrifices to ensure a healthy symbiosis between population
structure and economic growth and performance.
China has been mostly successful due to the strong political position of the
Chinese Communist Party (CCP) in its government. In contrast, the government in India is
in an often weak position when it comes to compelling meaningful and reform in the
economic sphere. India has indeed embarked on a population control policy of its own.
Family planning programmes have existed in India since 1951, making it one of the first
countries to make efforts in this direction. However, there has been very inconsistent
monitoring of those programmes which has resulted in widespread noncompliance. 24 The
population control policy of China has already been mentioned as a key factor in slowing
population growth however, other factors have contributed to the high level of Chinese
economic performance in the face of an increasing population.
The huge success of the Special Economic Zones (SEZs) established in China has
been attributable to a couple different factors. The centralisation of the Chinese economy
allowed the government to set up these SEZs where they saw fit, dictating domestic
21
Ibid, p. 72. Birdsall cites Enke, Stephen. Raising Per Capita Income Through Fewer Births. Santa
Barbara: General Electric-TEMPO, 1967.
22
Baden, Sally and Cathy Green, op. cit., p. 10.
23
Cleland, John, op. cit., p. 21.
24
Sarin, Ashi R. “India: Population-Control—A Dismal Record Of Non-Performance.” XII Patiala Fogsi
Conference of Obstetrics/Gynecology. Nov. 12, 2000.
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migration and population patterns for decades to come. As a result, urbanisation has been
concentrated in a small number of economically strategic locations. The fragmentation in
the Indian system, attributable to its democratic governmental structure, has not allowed
for such precise coordination and has thus led to slower urbanisation and a lesser skilled
work force. Larger urban areas permit greater industrial concentration which “generates a
higher level of employment than what can be achieved with industries spread out in
separate urban areas. Higher levels of Urbanisation mean a large overall labor market and
a large service sector interacting with manufacturing.”25 Mitra’s point emphasises where
China currently is in terms of economic growth and where India should aspire to be, via a
more concise and coordinated approach to an industrial transition. Mitra also highlights
that “average productivity increases with the size of the labor market, as average match
between the skill characteristics of workers and the job requirements of firms improves
with an increase in the size of the labor market.”26 This is yet another more attainable
condition for China than for India.
The developmental state model has been pursued by China and India with
varying success. The goals of difficult policies aimed at implementing and/or
monitoring, like population control, are more achievable with the presence of an
authoritarian regime.27 While it deserves much credit for maintaining the world’s largest
democracy, the Indian government is slow and unresponsive when the issues of
population growth and economic performance require nimbleness and decisiveness. First
possible steps in alleviating the stress of population growth on economic performance
might rest with empowering women through education which would, in effect, reduce
fertility rates which, in turn, would raise per capita incomes, thus allowing for greater
education investments in children, precipitating urbanisation as a more skilled workforce
searches for employment that spurs technological advancement. While there is still
much that can be written on the effects of population growth on economic performance,
especially in such rapidly developing (and growing) countries like China and India, this
article has aimed to highlight certain key factors of population and economic growth and
has attempted to illustrate the causal links between: per capita income, fertility and
lagged fertility rates, technological advancement, education and family planning
services (or population control policies in the case of China), and the aspects the
government is able to affect.
25
Mitra, Arup. “Total Factor Productivity Growth and Urbanisation Economies: A Case of Indian
Industries.” Review of Urban & Regional Development Studies, Vol. 12, No. 2 (2000), p. 97.
26
Ibid, p. 97-8.
27
While authoritarian regime has a negative connotation, it is used here simply to describe the Chinese
government as a one party system.
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Vol. 4 [2007]
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