Question

Answer the following question

200 to 250 word minimum

1. Thinking about the community in which you grew up, would you say that population growth was positively or negatively related to the local economy, or not related at all? Defend your answer.

Answer 1

Overpopulation is a growing problem throughout the world at this stage in time. Currently, the world population has crossed over the six billion mark and is on an exponential path upwards. Yet, what does this do to the status of nations’ economies? Economists are torn between two theories; one that states population increase and growth help a nation’s economy by stimulating economic growth and development and another that bases its theory on Robert Malthus’ findings. Malthus states that population increase is detrimental to a nation’s economy due to a variety of problems caused by the growth. For example, overpopulation and population growth places a tremendous amount of pressure on natural resources, which result in a chain reaction of problems as the nation grows. On the macroeconomic level, it is more believable to argue that population does undermine a nation’s economy because an increase in the number of people leads to an increase of the number of mouths to feed. The increase in demand for food leads to a decrease in natural resources, which are needed for a nation to survive. Other negative effects of population growth and, specifically, overpopulation include poverty caused by low income per capita, famine, and disease. India is a prime example of Thomas Malthus’ theory of population growth and its effect on the economy. India is a country plagued by poverty primarily caused by overpopulation. Inhabited by over nine hundred billion people, India has a population of three hundred million under the poverty line. A majority of the poor population is unemployed, starving, and is being forced to beg on the streets to make ends meet. Yet, the government isn’t showing any apparent signs of reform to decrease poverty among their citizens, through welfare programs or fiscal spending. In theory, more people may mean a country can produce and consume more goods and services, leading to economic growth. But this can only occur when employment opportunities grow at least as fast as the labor force and when people have access to the necessary education and training. This is a race that the Indian government is losing. Rapid population growth complicates the task of providing and maintaining the infrastructure, education and health care needed by modern economies.

Economists advocating the positive side to population growth, say that the growth creates new problems that in the short run constitute to a number of problems, including famine, poverty and even unemployment. Yet, they also state that in the long run, it leads to new developments, through advancement in technology, that leave countries better off than if the problems never occurred. On one hand, theoretical elements suggest that more population retard the growth output per worker. The overwhelming element in the theory is Malthusian diminishing returns to labor, as the stock of capital does not increase in the same proportion as does labor.

On the positive side, one can see a chain reaction of events caused by population growth. According to the neo-classical growth model, population is beneficial to an economy due to the fact that population growth is correlated to technological advancement. Rising population promotes the need for some sort of technological change in order to meet the rising demands for certain goods and services. With the increased populace, economies are blessed with a large labor force, making it cheaper as well, due to its immense availability. An increase in labor availability and a low cost for labor results in a huge rise in employment as businesses are more inclined to the cheap labor. Low labor costs results in a shift of money usage from wages into advancement through technology. According to this model, the technological advancement that accompanies the growth of population and the expansion of population, allows for even more population to survive due to the rise in overall outputs by the business and the nation as a whole. Thus, it generates demands for goods and results in overall economic growth. The rising population provides a supply of labor and contributes to the increase in output of goods. As shown in Graph 1, technological advancements allow for a rise in output from Q to Q’. The rise in total output meets the demands of consumers and the demands as the population keeps rising. Thus, the increase in output generally raises the per capita income of a nation.

According to Julian Simon, a prestigious economist at the University of Maryland, the long run benefits of population growth that links to economic development of poor countries are

on the positive balance, contrary to conventional wisdom. He figured that an increase in the numbers of consumers and an increase of income, expand the demand for raw materials as well as finished products. Naturally this would lead to a shortage in goods and services caused by the high demand for products and services, forcing up prices for the natural resources. The increased prices will trigger a search for new ways to satisfy the increasing demands in order to meet expectations. Sooner or later new sources and innovative substitutes will be found. The new discoveries lead to cheaper natural resources than existed before the increase in population and the demand for goods and services begin. In turn, it leaves a nation better off than if the shortages had never appeared, meaning the nation has gone through a process of economic growth and development.

Normally, through conventional wisdom, economists might argue that population growth and overpopulation hinders the growth output per worker. The important factor to this theory is Malthusian diminishing returns to labor, as the stock of capital, including land, does not increase in the same proportion as does labor. Another important factor, that contradicts Simon’s theory, is the dependency effect, which suggests that saving is more difficult for households when there are more children and that higher fertility causes social investment funds to be diverted away from high-productivity uses. These factors seem to suggest that high fertility, and, more importantly, increasing population growth create a negative effect on output per worker, and on the broader aspect, it creates negative economic growth.

Yet, empirical data does not support this a priori reasoning. Contemporary evidence provided by a number of economists indicates there is a correlation between population growth and economic growth and development. Although most of these economists found inconsistent evidence to prove this theory, they did, generally, obtain the same data. Their reports concluded that population growth does have a positive effect on less-developed countries (LDC’s). Although some said the positive effects were very minimal and weak, the economists were still able to use a simulation model for LDC’s and report that economic growth did occur.