Question

1a. What is economic growth? Describe why economic growth is necessary for any country (or civilization), to advance. How does the structure of an economic system create the incentive to spur advancements? Does this mean that money must be equally available to everyone? Explain.

1b. What are the dangers of economic growth expanding too rapidly in the economy? What is the primary distinction between when these trade-offs are acceptable, and when they will create future economic problems? Your explanation should be supported with the Aggregate Supply and Demand Curve.

1c. Do the incentives that drive an economy extend to all citizens in a population? How do physical, cultural, and intellectual resources prevent some people from being able to progress socially?

Answer 1

1.

Economic growth :

An increase in economic variables over a period of time is economic growth. The term can be used in an individual case or in the case of an economy or for the whole world. The most important aspect is its quantifiability i.e. One can measure it in absolute terms. All the units of measurement may be applied to show it, depending upon the economic variable where the growth is being studied. Examples ....=

1. An economy might have been able to see growth in food production during a decade which could be measured in tonnes.

2. The growth of road network in an economy might be measured for a decade or any period in miles or kilometers  

3. Similarly, the value of the total production of an economy might be measured in currency terms which means the economy is growing

4. Per capita for an economy might be measured in Monetary terms over a period.

2. Dangerous of economic growth.

Inflation risk: If demand races ahead of aggregate supply the scene is set for rising prices – many of the faster-growing countries have seen a trend rise in inflation – this is known as structural inflation

Environmental concerns:

Fast growth can create negative externalities e.g. noise pollution and lower air quality arising from air pollution and road congestion

Increased consumption of de-merit goods which damage social welfare

The huge increase in household and industrial waste. These externalities reduce social welfare and can lead to market failure.

Growth that leads to environmental damage may lower the sustainable rate of growth. Examples include the destruction of rain forests through deforestation, the over-exploitation of fish stocks and loss of natural habitat and bio-diversity from the construction of new roads, hotels, malls and industrial estates.

Growth and the Environment: The Sustainability of Economic Growth

Growth may lead to a rapid destruction of rain forests, the over-exploitation of fish stocks and loss of natural habitat created through the construction of new roads, hotels, retail malls and industrial estates. Some of the main environmental threats include:

The depletion of the global resource base and the impact of global warming. There are plenty of examples of the “tragedy of the commons”; the permanent loss of what should be renewable resources from over-extraction of some of our environmental resources.

A huge expansion of waste and pollution arising from both production and consumption

Over-population (particularly in urban areas) putting increased pressure on scarce land and other resources. More than half of the world's population lives in cities in 2009, most of them in developing countries according to the United Nations Population Fund.

Species extinction leading to a loss of bio-diversity - Scientists predict that at least a third and as much as two-thirds of the world's species could be on their way to extinction by the end of this century, mostly because people are destroying tropical forests and other habitats, over-fishing the oceans and changing the global climate.

Economic Growth and Income and Wealth Inequality

Not all of the benefits of growth are evenly distributed. A rise in real GDP can often be accompanied by widening income and wealth inequality in society that is reflected in an increase in relative poverty.

The Gini coefficient is one way to measure the inequalities in the distribution of income and wealth in different countries. The higher the value for the Gini co-efficient (the maximum value is 1), then greater the inequality. Countries such as Japan, Denmark and Sweden typically have low values for the Gini coefficients whereas African and South American countries have an enormous gulf between the incomes of the richest and the poorest elements of the population.

A frequently quoted example of the impact on inequality of rapid growth is China. Between 1990 and 2012, China experienced an annual GDP growth rate of 10.2%. During the same period, inequality increased more than 1.6% per year as measured by the Gini coefficient, making it among the highest in developing Asia.

One of the key reasons for high levels of structural inequality in China is the urban-rural divide. In common with many developing countries, China has a dual economic structure made up of an urban economy based on modern manufacturing and services, and rural areas dominated by more traditional but less productive agriculture. According to a report published in 2013 by the Asian Development Bank, the urban-rural divide now contributes nearly half (about 45%) of China’s overall income inequality

Inequality has also risen in India – again against a background of sustained growth - India enjoyed strong GDP growth between 1990 and 2012—averaging 6.6% annually. But there was also increase in inequality, with the Gini coefficient rising from 32.5 in 1993 to 37 in 2010.

3.Economists, demographers and other social scientists have long debated the relationship between demographic change and economic outcomes. In recent years, general agreement has emerged to the effect that improving economic conditions for individuals generally lead to lower birth rates. But, there is much less agreement about the proposition that lower birth rates contribute to economic development and help individuals and families to escape from poverty. The paper examines recent evidence on this aspect of the debate, concludes that the burden of evidence now increasingly supports a positive conclusion, examines recent trends in demographic change and economic development and argues that the countries representing the last development frontier, those of Sub-Saharan Africa, would be well advised to incorporate policies and programmes to reduce high fertility in their economic development strategies.

Keywords: economic development, family planning, millennium development goals, population, poverty

1.?INTRODUCTION

From the time of Malthus onwards, economists, demographers and other social scientists have been debating whether and how high fertility and rapid population growth affect economic outcomes and vice versa. There are at least four basic forms of the debate.

Does a large number of children diminish a family's present well being and future prospects?

Does rapid population growth adversely affect the overall performance of the economy and its ability to achieve and sustain general well being?

Does low income, or poverty, contribute to high fertility?

Is rapid population growth a symptom, rather than a cause, of low national output and poor economic performance?

In other words, the debates occur at both the macro- and the micro-levels and are about the direction of causality.

Despite these debates, a broad consensus has developed over time that as incomes rise, fertility tends to fall. There is little debate about the causal relationship between rising prosperity and declining fertility. Generally speaking, there has been a uniformly high correlation between national income growth and falling birth rates, and between family incomes and fertility. Economists and demographers for the most part agree that important ingredients of improved living standards, such as urbanization, industrialization and rising opportunities for non-agrarian employment, improved educational levels, and better health all lead to changed parental perceptions of the costs and benefits of children, leading in turn to lower fertility. In other words, there is no longer much debate about whether or not improved economic conditions, whether at the family level or at the societal level, lead to lower fertility. There are, of course, important differences between countries, and even within countries, regarding the timing and the pace of these changes, but that there is a causal relationship running from improved living standards to lower fertility is no longer in much dispute (National Research Council 1986).

Where debate remains active and at times quite contentious has to do with whether causality runs the other way—i.e. does reduced fertility improve the economic prospects of families and societies? Here there is anything but consensus, although, as I will argue in this paper, there appears to be a slowly growing convergence of views in favour of an affirmative answer to this question. This paper, in other words, addresses the question of whether reduced fertility, and more particularly public policies designed to reduce fertility, can lead to higher incomes and improved living standards.

A good deal of research, of course, has been conducted on this question. The paper attempts to summarize the present state of such research and the conclusions that emerge from it today. My purpose is to try to identify what policymakers can conclude from the present state of research and then to speculate on what might be accomplished between now and 2050 if policymakers were to pursue what I take to be the course of action suggested by the research findings.

2.?WHAT DO WE KNOW—MACRO?

Through the nineteenth and the first half of the twentieth century, intellectuals were roughly divided between the followers of Malthus and the followers of Marx. Crudely stated, Malthusians believed that high rates of population growth condemned societies to more or less permanent states of underdevelopment and that only by breaking the iron linkage of high fertility to poverty could real improvements in standards of living be achieved. Marx, on the other hand, argued that high fertility was a symptom, not a cause, of poverty and said that only by bringing about a radical transformation in the underlying causes of poverty would living standards rise and birth rates begin to fall.

In the modern era, which is to say since World War II, there have been three broad stages of economic thinking on the relationship between rapid population growth and economic performance. In the first stage, which followed the post war discovery by demographers of extremely rapidly expanding populations in many parts of the developing world, the work of scholars such as Coale & Hoover (1958), Myrdal (1968) and Enke (1970) came to be widely accepted. It was decidedly neo-Malthusian, arguing that only by bringing rapid population growth under control could countries hope to achieve improved economic performance and high standards of living. While this work hardly represented a consensus among development economists, it did capture the imagination of policymakers, particularly in the richer countries, and contributed to the formation of the modern ‘population movement’ as we have known it since the 1960s. This movement took as a given fact that rapid population growth harmed the prospects for development and that strong policies to reduce population growth rates were an essential precondition of sustained economic development (National Academy of Sciences 1971).

The second stage, which can be dated from around 1986, was what economist Kelley called the ‘revisionist’ period (Kelley 1986). The emblematic work of that period was the 1986 US National Research Council (NRC) publication, ‘Population growth and economic development: policy questions’. The work of an expert committee, the 1986 NRC report, concluded that as one of its authors, Birdsall (1988) put it, ‘rapid population growth can slow development, but only under specific circumstances and generally with limited or weak effects’. This was a return to mainstream neo-classical economics, which had always viewed Malthus's views as one-dimensional and simplistic, and which generally expressed skepticism about the strength of the relationship between high fertility and economic growth.

In an important sense, the NRC report broke the back of the population movement and ushered in a period of uncertainty about the priority that should be given to population policies, as well as about what the content of policy should be. It is fair to say that the NRC report fits nicely with the ideological predispositions of the Reagan Administration in the USA, which in 1984 had announced at the International Conference on Population at Mexico City that ‘population growth is in and of itself neither good nor bad; it is a neutral phenomenon’.1

The NRC report also reinforced the views of feminist and human rights critics of the population policies of the 1960s–1980s who successfully lobbied for wholesale changes in orientation away from population control and towards a rights-based approach, culminating in the reproductive health and rights agenda that emerged from the International Conference on Population and Development at Cairo in 1994 (Singh 1998).

An important conclusion to be drawn from the history recounted thus far is that the views of economists matter a great deal. Indeed, notwithstanding Robert McNamara's deep commitment to population stabilization and his personal efforts to promote population policies during his presidency of the World Bank, the Bank's cadre of professional economists has for years succeeded in keeping population at a relatively low priority in terms of bank lending operations. More often than not, the macroeconomic and sector analytic work of the Bank pays scant attention to population dynamics, even in such chronically high fertility regions as Sub-Saharan Africa.

This brings us to the third, and current, stage of economic thinking on population and economic development. A new group of development economists decided to look at the impact, not only of reducing population growth rates, but also of changing age structures on economic outcomes (Bloom & Canning 2006). They reasoned that rapidly declining fertility is accompanied by changes in the ratio between the economically active population and dependent population. As fertility falls, a larger proportion of the population is in the age range 15–65, compared with the under 15 and over 65 categories. This one-time ‘demographic bonus’ ought to be associated with increased economic output at the same time that social services requirements for those not yet economically active (e.g. for education and health care) decline. Thus, assuming countries also pursue sensible pro-growth economic policies, the demographic bonus ought to translate into a jump in income per capita. Applying the model to the Asian Tigers (Korea, Singapore, Taiwan and Thailand), these economists found that the data fit the model extremely well. Countries that incorporated strong and effective population policies within the broader context of social and economic development policies were able to cash in very profitably on the demographic bonus. So, by looking at a changing age structure in addition to declining fertility, economists were now able to discern a highly plausible causal connection between demographic change and economic growth—a connection that was much more difficult to see in the less sophisticated analysis of the 1986 NRC study and the prior revisionist research on which it reported (Merrick 2001; Greene & Merrick 2005).

This latest chapter in the ongoing saga of macroeconomic thinking on population–economic interactions does not by any means represent a new consensus. Many economists remain skeptical about the demographic bonus, or ‘window of opportunity’, as it is also sometimes known. But as the research accumulates, more and more policymakers are paying attention to it and forming their own ideas in accordance with the findings.

3.?WHAT DO WE KNOW—MICRO?

One might expect that economists interested in examining the impact of fertility on household income would pay more attention to the micro-level than to the macro-level, but this is not the case. Much more research has been conducted at the macro-level than at the micro-level, probably because of the greater availability of appropriate datasets. The truth is, that only detailed household panel surveys or randomized interventions (or actual or natural experiments) are adequate to accurately estimate the impact of fertility at one point in time on household income at subsequent points. Such datasets are comparatively rare because of the time and expense required to construct them. In the absence of longitudinal household information, it is nearly impossible to address the issue of what economists call the ‘endogeneity of fertility problem’ and thus the direction of causality: does poverty reinforce high fertility or does high fertility lead to poverty?

Fortunately, in just the last few years, datasets have become available (or have been discovered by economists) that permit sophisticated micro studies of the fertility–poverty relationship (Merrick 2001). One of these is the Indonesian Family Life Survey, a panel study that covered several years and that permitted investigators to look at the effect of changes in desired and actual fertility at one point in time on subsequent household poverty. Canning & Schofield (2007) found that over a three-year period, one birth on average reduced the likelihood of female labour force participation by 20 per cent. This decline in women's contribution to household income, in turn, reduced expenditure per capita in the household, pushing a significant number of families into poverty and preventing the escape of a significant number from poverty.

One of the economists who has been most demanding of a solid evidence base for conclusions about the effect of fertility on economic development or poverty is T. Paul Schultz. Schultz, while willing to stipulate the plausibility that high fertility acts as a barrier to economic growth and poverty reduction, has nonetheless for many years remained skeptical that the relationship is as strong or as stable as many neo-Malthusians assert it to be. Recently, however, Joshi & Schultz (2007) conducted a study, ‘Family planning as an investment in development: evaluation of a program's consequences in Matlab, Bangladesh’, using data from the famous Matlab family planning quasi-experiments of 1974–1996 and the associated surveillance system. Schultz and Joshi found that in the ‘programme’, villages and individual households fertility declined by some 15 per cent more than in the ‘control’ villages. They then looked at the impact of that decline ‘on a series of long run family welfare outcomes: women's health, earnings and household assets, use of preventive health inputs, and finally the inter-generational effects on the health and schooling of the woman's children. Within two decades many of these indicators of the welfare of women and their children improve significantly in conjunction with the programme induced decline in fertility and child mortality. This suggests social returns to this reproductive health programme in rural South Asia have many facets beyond fertility reduction, which do not appear to dissipate over two decades’.

The question of whether or not high fertility leads to, or exacerbates, poverty and whether this in itself should be grounds for policy interventions ultimately revolves around the question of parental intentions with respect to childbearing. If parents perceive children as good in and of themselves and are willing to forego other forms of consumption for the sake of having a large number of children, most economists would argue it is hard to make the case that they should be urged to have fewer of them. If, on the other hand, many of the children very poor parents are bearing are the result of unintended pregnancies, the case for public policies to assist them in having fewer would seem to be stronger.

Thanks to the remarkable series of surveys that began with the World Fertility Survey in the 1970s and continues to this day as the Demographic and Health Surveys programme, we know a great deal about fertility intentions in a large number of countries around the world, and the inescapable conclusion is that a significant proportion of births in developing countries are the result of unintended pregnancies. For example, an estimate by the Global Health Council in 2002 revealed that roughly one-quarter of the 1.2 billion pregnancies that occurred in the developing world between 1995 and 2000—some 300 million—were unintended (Daulaire et al. 2002). Since these estimates are the result of ex-post surveys of the women who had the pregnancies, many of whom may have changed their minds about the ‘wantedness’ of the pregnancies after they realized they were pregnant, it is quite likely that estimates of the number of unwanted pregnancies in fact understate reality. The ever rising numbers of abortions and of maternal deaths that result from abortion are additional evidence of the incidence of unwanted pregnancy around the world.

It seems justified to conclude that the burden of evidence from micro-analysis is that high fertility reinforces poverty and makes an escape from poverty more difficult. As Birdsall et al. (2001) conclude in their overview chapter in Population matters: demographic change, economic growth and poverty in the developing world, ‘ … the essays in this volume do point to a conclusion which links concern about population growth and change more directly to concern about the welfare of millions of people in the developing world. In their entirety, they put together a newly compelling set of arguments and evidence indicating that high fertility exacerbates poverty or, better put, that high fertility makes poverty reduction more difficult and less likely’.

4.?POPULATION GROWTH, HIGH FERTILITY AND THE MILLENNIUM DEVELOPMENT GOALS

The Millennium Development Goals (MDGs) were adopted by consensus following the United Nations (UN) Millennium Summit in 2000. They represent seven specific development goals adopted by the community of nations, as well as an eighth goal to work in harmonious partnership