Investigating the relationship between population and economic growth: an analytical study of India.

Author:Sethy, Susanta Kumar
Position::Report
 
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Abstract

The study revives the debate on the relationship between population and economic growth and address whether population growth will be more helpful for economic growth or not. We locate this study in India and compare relationships across the region from population growth and in different economic contexts. Theoretically, this study linkages between population and economic growth with positive and negative effect but after applying Empirical technique to time series data from 1970 to 2010 of India, we found strong evidence that there is positive relation between per capita GDP and population growth and the positive relation between total labour force and per capita GDP. The per capita saving rates affect the per capita GDP positively. Here, the study found one co-integrating relation between Population growth, per capita GDP growth, growth rate of per capita saving and growth rate of Total labour force. As to the direction of causality between the variables, the evidence tends to support the view that population growth spurs economic growth.

Key Words: Economic Growth, Population, Demographic dividend, Co-integration, Granger causality.

JEL Code: O40, J10, J11, C32

  1. INTRODUCTION

    Our generation is experiencing the most profound demographic transition ever and one of the major problems confronting mankind today concerns the fact that roughly two thirds of the world's population lives in countries that are characterized by extremely low levels of economic and social well-being.

    "We are living in an unusual era in demographic history. For thousands of years, world population grew at a snail's pace, so slowly, in fact, that it took over 1million years for population to reach 1billion and that was 200 years ago. But the pace quickened and in a relatively short span of 120 years the population doubled to 2billion. The 3rd billion took only 35 years to arrive and the 4th 15. Presently world population exceeds 5billion and demographers do not forecast a levelling until, the end of the next century at somewhat over 10billion." (Kelly 1988).

    The important aspect of the world population growth in recent past has been the differential in the growth rates, especially between the developed and the developing regions. The population of the less developed regions has increased at a rate which is exactly double than that of the more developed regions. It has resulted in growing concentration of world population in under developed regions and the other demographic characteristics of the underdeveloped countries included high fertility and low or rapidly declining mortality.

    Moreover, the underdeveloped areas of the world are further characterized by low per capita income, low rates of savings and investments, low literacy, high proportions of their labour force engaged in agriculture, low productivity in agriculture, higher youth dependency ratio, low industrial output, early marriages and high marriage rates.

    Generally, the economic development and population growth are intertwined with each other. The size of a country's population and its growth are important determinants of its economic development. A country will be called over populated if the population is increasing faster than economy.

    A country remains poor because it is overpopulated. A country is overpopulated not simply because of either rapid increase of population or that it exhibits high density. Overpopulation exists when population increases without a corresponding improvement in health, education, agricultural and economic wellbeing and some evidence suggests that the population up surge in the less developed countries is not helping them to advance economically. Malthus (1803) according to his model, technologies allow a higher total output. The increase in total output causes higher population through higher fertility and lower mortality. Becker (1960) and Becker and Lewis (1973) those paper argued that the existence of a trade-off-between quantity and quality of children. They also suggested that, if the income-elasticity of quality is sufficiently high, quantity will go down with higher income, explaining the observed negative relation between fertility and income levels. The interest in this mechanism was with revised with the presentation of an operational clynstic model of fertility in Barro and Becker (1989) and Becker and Barro (1958). Kelly (1973) the magnitude and the direction of the relationship between changes in household savings and family size depend critically on the origin of the family size and saving changes. Indeed, the impact of increased family size on savings is shown to be negative, positive or zero, depending on their alternative factors inducing family size changes. He also pointed out that the household behavioural frameworks, postulating a household decision-making model where saving, work force participation and family size decisions are all interdependent. World development Report (1993) the densely populated countries like India, Bangladesh and Pakistan have a negative impact of population growth particularly so because large proportions of their population are living below poverty line, the rate of saving is relatively low. A study done by Stockwell (2014) to determine the relationship between population growth and economic development among the developing countries but he is taking only 16 countries because national income data at a constant price index were available for only 16(Argentina, Ecuador, Greece, Honduras, India, Italy, Pakistan, Philippines, Portugal, South Korea and Turkey) and he find that rapid population growth has been strongly associated with a low level of economic progress.

    But another side we can't ignore the evidence or importance of labour force or human capital for economic development and if a country will generate more skilled or productive labour force than there will be no doubt about economic development for a developing. Nelson and Phellps (1966) relate growth to the stock of human capital which affects a country's ability to innovate and catch up with more advanced countries. Romer (1980) and Lucas (1988) giving emphasis on human capital accumulation. Human capital theory suggests that individual and society derive economic benefits from investments in people (Sweetland, 1996)). Mankiw et al. (1992) states that: "particularly for the developing countries, investment in human also more quantitatively important when a more open trading environment and a better public infrastructure are in place. Bloom et al. (2001) the state of health in a country affects its economic growth through various channels. When health improves, the country can provide more output with any given combination of skills, physical capital and technological knowledge. One way to think this effect is to treat health as another component of human capital incorporated in formulating the endogenous growth models. Mamuneas et al. (2006) they find a positive impact of human capital on economic growth in a group of high, middle and low-income countries across continents consists with BaS (Bassanin and Scarpetta). Haldar (2009) has observed that among the growth models (via, physical capital, human capital and export led growth), the human capital accumulation led growth model is more relevant to Indian economy. Bloom et al. (2010) study economic growth in China and India between 1965 to 1970 and 1995 2000 and find that increases in the working age population share during that period boosted the rate of economic growth in India by an annual average of 0.7 percentage points. Bloom, Canning, and Rosenberg (2010) find that, if India adopts policies that allow the working-age population to be productively employed, India may receive a demographic dividend of roughly 1 percentage point growth in GDP per capita, compounded year by year. Bloom and Sachs (1998) have obtained empirical evidence that health and demographic variables play an important role in determining economic growth rates.

    The long-term relationship between income and health is examined by Arora (1999) considering the developed countries in the world and has observed the hypothesis that of the population has influenced economic growth and that it should be an integral component of the productivity of economies and supporting the endogenous growth model. Simon (1989) his possible theoretical argument is, the population and economic development are essentially related over the long-rung horizon and should possess minimal tendency for a short-run relationship. Hirschman (1958) his argument that high rate of population growth stimulates motivation for improved productivity seems to be operating for India. Kelly et al. (1972a) they pointed out that in a general equilibrium dualistic model the feedback of economic progress on the pace of demographic change is critical to appraising both the short-and the long-run quantitative impact of population on the economy. Pathy (2014) he has done a research on different third world...

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