Population Growth and Economic Development

1. Population Growth and Economic Development November 21, 2011 Kyoto University Junichi Mori

2. “Population Growth is still an issue.” UNPF, Sate of World Population 2004, P8 http://www.unfpa.org/upload/lib_pub_file/327_filename_en_swp04.pdf

3. Population explosion (人口爆発）concentrates on poor regions http://www.worldbank.org/depweb/english/modules/social/pgr/map1a.html

4. The Characteristics of Population Growth • KUINEP In an economic model, an endogenous change is one that comes from inside the model and is explained by the model itself. An exogenous change is one that comes from outside the model and is unexplained by the model. 日本語：　endogenous (内生的）　exogenous (外生的）

5. KUINEP Population growth and economic development Exogenous (外生的） Endogenous　（内生的） Exogenous population explosion is not paralleled by increase in employment and income. Developing economics face with the serious problem of resource exhaustion, economic degradation, and destitution.

6. KUINEP Correlation between population growth and economic growth 人口と経済成長の相関関係 • Optimumpopulation growth  acceleration of economic growth　経済成長の加速 • Over and under population growth constraint on economic growth　経済成長の制約 • Population growth, which occurs in parallel with GNP growth would result in: • - further acceleration of economic growth • - enlargement of markets including products market and labor market • - induction into specialization

7. KUINEP Negative Influence of population growth on economy　人口成長が与える負の影響 If the population growth of a country is faster than the growth rate of GNP, then it has negative impact on the economy. population growth  GNP per capita decreases  purchasing power decreases substantially  shrinkage of various markets including products and labor market  vicious circle (shown as in Malthus model)

8. KUINEP Population Growth • 1. Natural increase　（自然的増加） • The natural rate of Population growth (NR) • = the birth- rate (BR) - the death-rate (DR) • Social increase　（社会的増加） • - Migration

9. The Theory of Demographic Transition BR DR 2 1 3

10. KUINEP Three phases of population growthChange in the birth- and death rates in the UK Hayami (2005)

11. Why is the theory of demographic transition important? • To look for patterns which help explain changes in population growth rate • To help predict changes in population growth rate and effective ways of controlling it

12. The population of Japan since the Jomon era Source: 平成16年　少子化白書、http://www8.cao.go.jp/shoushi/whitepaper/w-2004/html-h/index.html

13. KUINEP Japan’s demographic transition JICA (2003)

14. Phases of Japan’s demographic transition • A period of high fertility rate and high mortality rate until 1870 • A period of high fertility rate and low mortality rate between 1870 and 1960 • A period of low fertility rate and low mortality rate since 1960 • Rapid increase in the birthrate from 1945-1950 Decline in the death-rate from 1945-1960 • Japan’s demographic transition was completed around 1949.

15. Development Economics IPopulation growth Theoretical Explanation

16. G (W) G The Malthus Model • Hayami (2005), Development Economics p 73-78

17. The household utility maximization model　（家計の効用最大化モデル） • Hayami (2005), Development Economics p 73-78 • In order to understand this model, the concept of “utility” should be understood. • “A central principle of microeconomics is that households and firms optimize- they do the best they can for themselves given their objectives and the constraints they face. • In microeconomic models, households choose their purchases to maximize their level of satisfaction, which economists call utility, and firms make production decisions to maximize their profits.” (Mankiw, Gregory, “Macroeconomics 5th Edition p12)

18. Utility Amount of Goods Utility • Utility is the abstract measure of satisfaction or happiness that consumers receive from money or goods they own or consume. 0

19. Parent’s utility comes from… • Instinctive pleasure, such as love of children and satisfaction of having heirs. • Expected income from children for the household • Security for parents during old age

20. Marginal Utility Utility c b a a b c Number of Children Number of Children Marginal Utility of Children

21. Marginal Utility MU0 MU0 Number of Children Marginal Utility Line

22. Disutility of having children • Physical and psychological hardships in bearing and rearing children • Costs paid for child-bearing and rearing • Opportunity costs* of parents’ labor used for child-bearing and rearing *opportunity costs of some items are what one has to give up to get that item. (Gregory Mankiw, “Principles of Economics 3rd Edition” 2004, p51)

23. Marginal Disutility Number of Children Marginal Disutility Line MD0 MD0

24. Marginal Utility / Disutility MU0 MD0 MU0 n0 Number of Children 1st phase: The initial equilibrium is found. MD0 MD0

25. 2nd phase: Shift of marginal utility and disutility line 2nd Phase of demographic change • Rightward shift of MUL • Employment and income earning opportunity rises • Social security and insurance market do not develop at this phase • Upward shift of MDL • Since labor law and primary school system not yet established, cost to rearing children doesn’t rise so much • Opportunity cost of mothers to rear children rises

26. Marginal Utility / Disutility MU1 MU0 MD1 MD0 MD1 MU1 MU0 MD0 n0 n1 Number of Children 2nd phase: Shifts of utility and disutility lines

27. 3rd Phase: Leftward shift of MUL and upward shift of MDL • Leftward shift of MUL • Reduced death rate reduced the utility of having children • Increased social mobility decreases possibility that children live with parents together • Further upward shift of MDL • Education system develops and education cost of children rises • Opportunity cost of mothers’ to rear children rises very much

28. Marginal Utility / Disutility MU1 MU0 MU2 MD2 MD1 MD0 MD2 MD1 MU1 MU0 MD0 MU2 n2 n0 n1 Number of Children Later phase:Shift of utility and disutility lines

29. Demographic Change in East Asia • Can we explain the demographic change in East Asia by using the household utility maximization model? • Which countries belong to the early phase of MUL analysis? • Which countries belong to the 2nd phase of development? • Which countries belong to the 3rd phase of development?

30. Please consider how to explain by using the utility and disutility lines • In China, parents should pay additional service fees, like school expenses, when they get a second child. What kind of effects this regulation may have on parents’ behavior. • In Bangladesh, the United Nations try to prevail the primary education by offering free lunch for children in the school. What kind of effects it may have on demographic change in the country?

31. Marginal Utility / Disutility MU0 MD0 MU0 n0 Number of Children Please explain the two cases described in the former slide. MD0 MD0

32. Reference • Hayami, Yujiro, “Development Economics” 2005, London • Oizumi, Keiichiro, The effect of aging society in ASEAN 4 and China on macro economic development ( in Japanese) • 大泉啓一郎 「ASEAN4と中国の少子高齢化とマクロ経済に及ぼす影響」 日本総研RIM 2004 Vol４ • Mankiw, Gregory “Macroeconomics 5th Ediction” 2003、New York • Japan International Cooperation Agency (JICA), “Second Study on International Cooperation for Population and Development New Insights from the Japanese Experience”, November 2003 • http://www.jica.go.jp/english/resources/publications/study/topical/ssic/pdf/ssic_03.pdf • East-West Center, The Future of Population in Asia, Honolulu, • http://www.eastwestcenter.org/publications/search-for-publications/browse-alphabetic-list-of-titles/?class_call=view&pub_ID=1300 • David Canning, The impact of Aging on Asian Development,. ADBI web site • http://www.adb.org/AnnualMeeting/2007/seminars/presentations/dcanning-presentation.pdf