PRESENTED BY : BASHIR AHMAD (GS 17874)

PRESENTED BY : BASHIR AHMAD (GS 17874) REMMY ASMARA (GS 18192)

*ENDOGENOUS FERTILITY AND GROWTH

Population, Technology, and Growth:From the Malthusian Regime to the DemographicTransitionOded Galor and David N. Weil1August 19, 1998

“ The most decisive mark of theprosperity of any country is the increase in the number of its inhabitants." observed Smith (1776),

This paper examines the evolution of the relationship between population growth, technological change, and the standard of living. • It develops a unified model that encompasses three distinct regimes which are called “ Malthusian, “ “ Post-Malthusian, “ modern growth. • The analysis focuses on two differences between these regimes: first, in the behavior of income per capita, and second, in the relationship between the level of income per capita and the growth rate of population.

Malthusian Model • The Malthusian model has two key components. The first is the existence of some factor of production, and second is a positive effect of the standard of living on the growthrate of population. • The Malthusian model implies that, in the absence of changes in the technology or in the availability of land, the population will be stable around a constant level. • improvements in technology will, in the long run, be offset by increases in the size of the population.

Maddison (1982) estimates that the growth rate of GDP per capita in Europe between 500 and 1500 was zero. Lee (1980) reports that the real wage in England was roughly the same in 1800 as it had been in 1300. • Clark (1957) concludes that income per capita in Greece in 400 BC was roughly equivalent to that in Britain in 1850 or Germany and France in 1870. According to Chao's (1986) analysis, real wages in China were lower at the end of the 18th century than they had been at beginning of the first century. • Livi-Bacci (1997) estimates the growth rate of world population from the year 1 to 1750 at 0.064 percent per year. And this growth represented a great increase over the rates in earlier periods.

The prediction of the Malthusian model that differences in technology should be reflected in population density but not in standards of living is also borne out. • For example, China agriculture technology allowed high per-acre yields, but failed to raise the standard of living above subsistence. • Similarly in Ireland a new productive technology { the potato }allowed a large increase in population over the century prior to the Great Famine without any improvement in standards of living.

As a conclusion, population growth is positively related to the level of income per capita. Technological progress is slow and mis matched by proportional increases in population, so that output per capita is stable around a constant level.

Figure 1 : The growth rate of total output in Western Europe between the years 500 and 1990

Post - Malthusian Regime • During Post-Malthusian Regime, the Malthusian mechanism linking higher income to higher population growth continued to function • Indeed, while the rate of total output growth increased, the rate of growth of population peaked in the 19th century and then began to fall. As living standards rose, mortality fell. • But as income continued to rise, population growth fell further below the maximum rate that could be sustained given the mortality regime. The reduction in fertility was at its most rapid in Europe around the turn of the century

The reversal of the Malthusian relation between income and population growth corresponded to an increase in the level of resources invested in each child. • Conclusion that can be taken, the growth rates of technology and total output increase. Population growth absorbs much of the growth of output ,but income per capita does rise slowly. • The economy endogenously undergoes a demographic transition in which the traditionally positive relationship between income per capita and population growth is reversed.

However, The emergence from the Malthusian trap raises intriguing questions. How is it that the link between income per capita and population growth, which had for so long been a constant of human existence, was so dramatically severed? And how does one account for the sudden spurt in growth rates?

Modern Regime • The majority of the literature has been oriented toward the modern regime, trying to explain the negative relation between income and population growth either cross-sectionally or within a single country over time (e.g. Barro and Becker, 1989). • Among the mechanisms are that higher returns to child quality in developed economies induce a substitution of quality for quantity (Becker, Murphy, and Tamura, 1990) whereby developed economies pay higher relative wages of women, thus raising the opportunity cost of children. • Parents also switch out of quantity and into quality, but do so not in response the level of income but rather in response to technological progress.

The argument that technological progress itself raises the return to human capital was most clearly stated by Schultz (1964). New technology will create a demand for the ability to analyze and evaluate new production possibilities, which will raise the return to education. • The effect of technology which are most interested is the short run impact of a new technology.In the long run, technologies may either be “skill biased" or “skill saving.“ but argue that the introduction of new technologies is mostly skill biased • If technological changes are skill-biased in the long run, then the effect on which we focus will be enhanced, while if technology is skill-saving then our effect will be diluted.

Increased technological progress initially has two effects on population growth. It improved technology eases households' budget constraints, allowing them to spend more resources on raising children. • On the other hand, it induces a reallocation of these increased resources toward child quality which make the population growth more moderate

Conclusion • The model generates an endogenous take-off from a Malthusian Regime, through a Post-Malthusian Regime, to a demographic transition and a Modern Growth Regime. • In early stages of development - the Malthusian Regime the economy remains in the proximity of a Malthusian trap, where output per capita is nearly stationary and episodes of technological change bring about proportional increases in output and population. • In the intermediate stages of development - the Post-Malthusian regime the intensified pace of technological change that is caused by the increase in the size of population during the Malthusian regime permits the economy to take off.

In modern growth regime , population growth is moderate or even negative, and income per capita rises rapidly. Two forces drive the transitions between regimes: • First, technological progress is driven both by increases in the size of the population and by increases in the average level of education. • Second, technological progress creates a state of disequilibrium, which raises the return to human capital and induces parents to substitute child quality for quantity.

Human Capital, Fertility and GrowthOded Galor

Introduction • The transition from stagnation to growth has been the subject of an intensive research in recent years. • The rise in the demand for human capital and the associates decline in population growth have been identified as the prime forces in the movement from an epoch of stagnation to a state of sustained economic growth.

The evolution of economies over most of human history was marked by Malthusian stagnation. • Technological progress and population growth were miniscule by modern standards and the average growth rate of income per capita was even slower due to the offsetting effect of population growth on the expansion of resources per capita. • The decline in population growth and the associated advancement in technological progress and human capital formation paved the way for the emergence of the modern state of sustained economic growth.

The evolution of population growth in the world economy has been non-monotonic. The growth of world population was sluggish during the Malthusian epoch, creeping at an average annual rate of about 0.1% over the years 0-1820 (Maddison, 2001). • The world annual average rate of population growth increased gradually reaching 0.8% in the years 1870-1913. The take-off of less developed regions and the significant increase in their income per capita generated a further increase in the world rate of population growth. • The timing of the demographic transition differed significantly across regions. The reduction in population growth occurred in Western Europe, the Western Offshoots, and Eastern Europe towards the end of the 19th century and in the beginning of the 20th century

Theories of the Demographic Transition - There are few theories of the demographic transition that lead to human capital, fertility and growth A )The Decline in Infant and Child Mortality • The mortality decline in Western Europe started nearly a century prior to the decline in fertility • The decline in fertility during the demographic transition occurred in a period in which this pattern of increased income per capita was intensified,

The pattern of declining mortality maintained the trend that existed in the 140 years that preceded the demographic transition. • The reversal in the fertility patterns suggests that the demographic transition was prompted by a different universal force than the decline in infant and child mortality.

B. The Rise in the Level of Income Per Capita • This theory suggests that the timing of the demographic transition across countries in similar stages of development would reflect differences in income per capita. • The rise in income per capita prior to the demographic transition has led some researchers to argue that the demographic transition was triggered by the asymmetric effects of the rise in income per capita on households income and on the opportunity cost of raising children

Becker (1981) argues that the rise in income induced a fertility decline because the positive income effect on fertility was dominated by the negative substitution effect that was brought about by the rising opportunity cost of children • The simultaneity of the demographic transition suggests that the high level of income reached in the Post-Malthusian regime had a very limited role in the demographic transition.

C. The Rise in the Demand for Human Capital • The gradual rise in the demand for human capita has led researchers to argue that the increasing role of human capital in the production process induced households to increase investment in the human capital leading to the onset of the demographic transition. • The increase in the rate of technological progress and the associated increase in the demand for human capital brought about two effects on population growth.

At one hand, improved technology eased households' budget constraints and provided more resources for the quality as well as the quantity of children • On the other hand, it induced a reallocation of these increased resources toward child quality. • Thus, consistent with historical evidence, the theory suggests that prior to the demographic transition, population growth increased along with investment in human capital, whereas the demographic transition brought about a decline in population growth along with a further increase in human capital formation.

Conclusion • The demographic transition that swept the world in the past 140 years has been identified as one of the prime forces in the transition from stagnation to growth. • The unprecedented increase in population growth during the early stages of industrialization was ultimately reversed.

The rise in the demand for human capital brought a significant reduction in fertility rates and population growth in various regions of the world, enabling economies to convert a larger share of the fruits of factor accumulation and technological progress into growth of income per capita.

Thank You

PRESENTED BY : BASHIR AHMAD (GS 17874)