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Analysis of Population Dynamics in World Economy
Martin Gress
Population dynamics is an important topic in current world economy. The size and growth of population have an impact on economic growth and development of individual countries and vice versa, economic development influences demographic variables in a country. The aim of the article is to analyze historical development of world population, population stock change and relations between population stock change and economic development.
Keywords: population, world economy, population growth, economic growth, economic development
1 Historical Development of World Population
In the last decades of the 20th century there was a marked increase in the planet’s population. The world population is currently estimated at 6.896 billion (year 2010)1. It should be noted that the increase during the last century is a new phenomenon that is unprecedented in the past (see chart 1). The overall state of the world’s population since the beginning of human civilization evolved relatively evenly, natural increase was low, close to zero. Only the last 200 years have led to significant growth, which resulted in much faster growth in the number of people on Earth as it was in previous centuries. This growth started with a gradual decline in mortality rates in Europe and North America, which accelerated in the 20th century, especially in developing countries after 1950. If one looks at table 2, one can see that over the last 50 years, the population increased more than in the period before 1950 (from 3 to almost 7 billion). This acceleration in the growth of population is visible at a time, which resulted in the addition of the next billion. While the first 2 billion were achieved in 2.5 million years, the remaining 5 will be achieved, as estimated for 2013, in 60 years.
In the early existence of human civilization, while developing primitive communal system, the total annual increase of population was 0.002%. In case that such a growth rate of world population was maintained in the subsequent development of civilization, a doubling of the Earth’s population would be achieved in 35000 years2. Such development essentially took place almost 2.5 million years during the Stone Age. Taking time span of 2.5 million years as a basis for human development, it can be stated that during the nearly 99% of the time of the existence of human civilization, there was a very low level of population growth and natural increase.
Since 1820 when the first billion of world population was reached, there was nearly 7-fold world population growth until now in about 200 years. At present, the world’s population growth rate is 1.16%, which means, in the case of a
1 http://esa.un.org/unpd/wpp/Excel-Data/population.htm.
2 Applying Rule 70, which means that the 1% population growth equals doubling population in 70 years.
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constant level of growth, doubling the population over the next 60 years until the 2070. If one used the increase in the time series towards the past, the civilization would have to begin to develop from about 500 BC, which means that one has to omit the modern history of human civilization dating back to the agricultural revolution about 8000 BC. If one were to take account of population growth at 1.33%, which currently belongs to developing countries, civilization would have even begin to develop around the year 200 BC. If one thought of population growth at 2.21% (LDCs), civilization would have to begin to develop from 700 AD. In case of world population growth taken as the average figure from the 1960’s of the 20th century, when world population growth rate reached its maximum 2.3%, development of civilization had to occur after 700 AD. The higher natural increase is, the faster the doubling of population of the country or the world. Between 2005 and 2010, the average annual population growth rate in Qatar was 15.24%. In this case doubling of the population occurs after 4.5 years. In case the whole world reached such an increase, the human race on Earth would have to occur in the 19th century, around 1830, when the Earth reached the first billion.
Source: McFalls, J. A.: Population: A Lively Introduction. In: Population Bulletin, Vol. 62, No. 1, 2007, p. 25.
Mankind has developed more than 25 centuries, or 22 or 13 centuries. Outset of human civilization dates back to the Old Stone Age, the first traces of civilization began to appear before 2.5 million years. During the long development there was a natural growth of population at level of 0.002% per annum. During the Old Stone Age people existed as gatherers, later on as hunters who gather food
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from plants and animal husbandry and fishing. Such food production brings only a low calorific value per unit area, hence the low population density. In addition, the reduction of the population is affected by other factors such as the fights between the tribes, natural disasters and diseases. From a demographic perspective, the development of such a population is essentially constant, whereas a high birth rate is offset by high mortality rates. Therefore, during the Old Stone Age there was no significant increase in world population.
In the course of the last 10000 years, there have been several events which were, in view of previous developments, incredibly able to accelerate growth in world population. The first step to rapid demographic explosion has become an agricultural revolution around 8000 BC. The Old Stone Age passed into the New Stone Age. New techniques of food production in agriculture enabled to some extent the increase of the population growth rate from 0.002% to 0.05% per annum, which means accelerated population growth and a sharp increase in the indicator of population doubling from 35000 years to 1400 years (more precisely 1388 years). Despite the possibility of improving food production, however, these increases were not too high so the population growth did not affect the exploitation of natural resources as it is now.
A further significant population growth occurred in the mid-17th century, when around the year 1650 the estimated growth rate of world population was at 0.43% per annum. There was further acceleration of the population doubling from 1400 years to 163 years. One may identify two main factors influencing this growth acceleration. The first was the end of 30-year war (1618-1648) and signing of the Peace of Westphalia and subsequent creation of a system of nation states in Europe. The second factor was overseas discoveries that occurred in previous decades, and transformed some European countries into significant colonial powers (Britain, France, Netherlands, Portugal, and Spain). Thanks to overseas colonial discovery and forays countries were able to consume more than they could produce within domestic economies. Colonies were often used to obtain natural resources, which the countries themselves had a significant shortage of, allowing significant growth in population, whereas there was an increase in wealth per capita. Moreover, in the next decades of the 17th century and later, starting in 18th century, a policy of developed mercantilism prevailed, which has triggered the future foundation of the industrial revolution - the development and concentration of production in manufactories, which were based on a strict division of labor and specialization, allowing once again growth of output per capita. The sale of production to foreign countries gained additional reserves of precious metals, which meant re-increase of income per capita and more population growth in individual countries implementing mercantilist doctrine. In addition, domestic migration from rural to urban areas began, where earnings were often higher than in rural areas. However, the actual migration boom came in the next phase of development.
Chart 2 Growth of Number of People on the Earth, 8000 BC - 1975 AD
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4 -3 -2
1 -О -
8000 0 1000 1250 1500 1750 1850 1900 1950 1970 1975
BC
Year
Number of people _ Exponential growth
Source: author's own processing, data from Szirmai: Dynamics of SocioEconomic Development, p. 144.
The third step, the consequences can be felt even now, and which has a direct impact on the incredible acceleration of growth in world population, was the industrial revolution, which occurred in 18th and 19th century. Transformation of agriculture allowed releasing a large mass of the working population, which left the countryside and migrated to the cities. There was a significant increase in the number of cities and increase in residential density in urban areas. Since that time one can talk about the real exponential population growth (see chart 2), which is associated with modern age. At the end of the 19th century, population growth rates began to reach 0.91% per annum, and for the doubling of the population, assuming constant annual growth, 78 years were sufficient.
Alternatively, one can identify the fourth period - the fastest period of world population growth between 1950 and 2000. To achieve each of the next billion of world population at that time less and less time was needed as it is documented in table 2. In doing so, the vast majority of world population growth during this period is characteristic of developing countries.
Table 1 Growth Rates of Natural Increase of World Population
Year(s) Natural Increase (% Per Annum) Population Doubling (Years)
2.5 million years - 8 000 BC 0.002 35 000
8 000 BC 0.05 1 400
1650 0.43 163
1900 0.91 78
1960 - 1970 2.3 32
2005 1.3 55
Source: author's own processing.
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One may see in table 1 gradually accelerating population growth with the development of human civilization and technological progress in different periods. At first, the longest period for doubling the population was to be 35000 years, with the advent of the agricultural revolution, the time required for doubling reduced 25-fold to 1400 years. In the Middle Ages there was a nearly 9-fold acceleration and in the early 20th century the acceleration almost doubled. If one compares the rate of doubling the population in the Old Stone Age and in the 1960’s of the 20th century, one sees that there was a 1094-fold reduction in the time required for doubling of global population. Since the beginning of the 21st century there is a declining growth in world population, estimated also further in the coming decades.
Table 2 Increase in World Population
Year Number of People (Billion) Number of Years Needed for Reaching Billion
1830 1 2.5 million
1930 2 100
1960 3 30
1975 4 15
1986 5 11
1998 6 12
2013 (estimate) 7 15
2027 (estimate) 8 14
2048 (estimate) 9 21
Source: Nafziger: Economic Development (in 1998), pp. 271-272; Population Reference Bureau (estimates from 2013 to 2048; author's own processing.
For the population dynamics, population growth increase by 1 billion is important. In table 2 one sees that the first billion was reached around 18303 with the advent of the consequences of the industrial revolution. Since that time there was a continuous shortening of the time needed to reach the next billion. The first billion was reached after 2.5 million years; the second billion was reached in 100 years. In the 20th century due to technological progress, improvements in health care, raising living standards in different countries the growth of the world population accelerated, from the second to the third billion in 30 years, the fourth billion in 15 years and the fifth in just 11 years. Since the 1990’s, there is a gradual slowing of world population growth, the sixth one billion was reached in 1998 after twelve years and the seventh billion, according to UN projections is expected in 2013, after 15 years. At the end of the first half of the 21st century world population growth should gradually slow down, so an increase in the estimated 9 billion should be achieved in 21 years between 2027 and 2048.
3 Information on the reaching of the first billion are different, for the needs of this work we use data in Ray and Szirmai.
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2 Population Stock Change
Human population has the capacity and tends to grow sharply. This growth can be expressed by an indicator of a doubling of the population, the number of years during which there is a doubling of world population, or a particular country population. In general the 70 Rule may be used, which may help to calculate the time it takes for the population to double assuming unchanging growth rate. If one divides the 70 by average annual growth rate, one gets a number of years for which the population doubled. In case of growth of rate of natural increase, the time required for doubling the population shortens4.
Table 3 World Population Growth, 1900 - 2100
Population (Billion) % Growth Expected Population (Billion) % Growth
1900 1950 1990 1950 -1990 2025 2100 1990 -2100
Developing Countries 1.07 1.68 4.08 143 7.07 10.20 150
Developed Countries 0.56 0.84 1.21 44 1.40 1.50 24
World 1.63 2.52 5.30 110 8.47 11.70 121
Source: Potter, RB et al. Geographies of Development. Geographies of Development. Harlow : Pearson Education Limited, 2004, p. 185.
As already mentioned, the vast majority of growth in world population arises in developing countries. The population growth in less developed countries is documented in table 3. As seen in the first part of the table, in the years 1950 -1990 there was a growing population in developed countries by 44%. At the same time, however, population growth in developing countries achieved an increase of 143%, despite the fact that many developing countries began to apply more or less successful population policies to address the problem of rapid population growth and also has improved living conditions and health care. In view of the future projected development of the world's population, a rapid decline in the growth rate of developed countries to 24% can be seen, while accelerating rate of population growth in developing countries to 150%. The vast majority of the world's population already live in these countries, the population in each country are, as regards the number, bigger than the population in developed countries, so one can expect even greater pressure on natural resources in developing countries than at present, which may cause further reduction of capital per capita, which will result in a reduction or stagnation of production and ultimately in the reduction in income
4
If the natural growth was at a constant level of 10%, there is a doubling of the population over 7 years.
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per capita in developing countries. So the country gets back into the vicious circle of poverty.
With regard to population size in 2010, the number of people on Earth reached 6.9 billion, which is an increase of more than 2^ times5. By 2050 a further increase in the number of people on Earth is predicted, and it is estimated that the total number reaches the 9 billion and reaches almost 9.15 billion according to a medium variant of global population development, as shown in chart 3.
Chart 3 Number of People on the Earth, 1950 - 2050, Billion
1950 2010 2050
Source: World Population Prospects - The 2008 Revision, p. 48.
Chart 4 Number of the World Population in Different Types of Countries, Billion
Source: World Population Prospects - The 2008 Revision, p. 50, 52.
5 World Population Prospects - The 2008 Revision. p. 48.
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Most of this number, both past and future, is located in developing countries (see chart 4). In 2050 the world population will be divided into 14% in developed countries and 86% in developing countries6. The economic consequences of this development are obvious. Due to strong population growth in developing countries comes the growth of the needs of the residents of these countries for natural resources, which will face even more consistent exploitation than now. Faster depletion of natural resources and population growth will have an impact on environmental degradation in developing countries, which will bring public health problems in these countries. It is likely that economic growth in these countries will not be as strong as the economic growth of developed countries during the industrial development phase.
2.1 Changes in Population Stock and Economic Development
Changes in population have an impact on the country’s economic development. According to Szirmai one may identify eight possible relationships between demographic and economic developments in individual countries. These relations have a significant impact on the overall development especially in developing countries where rapid and high population growth creates pressures on the labor market, investments, etc. It should be noted that not only population growth affects economic development, but the reverse is also true. Growth of the population stock and economic development of the country are like communicating vessels, it is not sufficient to ensure economic development without the development of the population (economic growth has an impact on job creation, however, when the natural decline in the country, it is not possible to fill the new jobs, which leads to a reduction of total production in the country). On the other hand, the population growth creates pressure on natural resources, so the economy of the country is forced to invest time and resources into technological development, thus ensuring better and more efficient use of these resources and sustainable growth, so these resources will be available for future generations. Individual relations can be summarized as (Szirmai, 2005):
□Impact on the productive potential of the country,
□Impact on employment,
□Impact on the market for goods and services,
□Impact on consumption,
□Impact on manufacturing investment and savings,
□Impact on the size and growth of the workforce,
□Impact on the environment,
□Impact on technological change.
Population growth has a significant impact on the productive potential of the country by supplying labor, which is one of the factors of production. Labor participates directly in the inputs into the production process. What is important is the level of skills and education, and health of workforce, which has an impact on
6 Ibid, p. 50, 52.
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total production and production potential of the country. Health, and in particular adequate food for the workers, proves to be one of the key factors impacting overall production. If there is enough labor, both skilled and unskilled, nutrition becomes the key factor. It is therefore necessary to ensure sufficient supply of food and nutrients, enabling the full utilization of labor capacity of the workforce in the country.
On the one hand population growth may affect the growth of the size of the labor supply, or growth rate of output of the country, on the other hand, population growth may affect employment in the country. Here is a visible correlation between population growth and economic development, which, in the case of sharp growth, as in developing countries, must be sufficiently high and the economic development of the country adequate enough to be able to provide its growing population and the growing workforce with sufficient employment opportunities. If not, the situation leads to the creation and what is worse, a gradual continuous increase in unemployment, which in developing countries can take two basic forms - open unemployment and disguised unemployment. Concerning developing countries, it is the open and disguised unemployment in cities, because in the countryside the situation is different and within families all its members work, so there is over-employment in agriculture. Households employ its members on farms even after marginal product of labor falls to zero and the total production is no longer increasing, but constant. Different situation occurs in cities, where open unemployment is associated mainly with the formal sector of the economy (One that is under some control of government. Mostly it is employment and unemployment in multinational corporations operating in various developing countries, thanks to the benefits that governments of these countries provide. Workers are working for minimum wage, and are unionized). On the other hand, there is the informal sector of the economy, employing those who failed to find a job in the formal sector. This is for example the employment of relatives who had emigrated for better work from the countryside to the city and which must be taken care of. Unlike in the formal sector there is no state control, workers often work almost for free, are not unionized, leading to hidden unemployment in informal sector. It is common that in an Indian restaurant will be a table at which sits one or two customers, served by four - five different people. The first will take orders for drinks, the other for food, the third brings drinks, the fourth will dispose of food and the fifth will cash in. All these activities may be carried out by one waiter, as it is common in the West.
In the case of high population growth in the country, this growth may stimulate the growth of output of goods and services by widening of market size, thus the demand curve for goods and services moves to the right. In the case of high natural increase many children are born and become consumers immediately after birth, so it automatically increases demand for goods and services related to the satisfaction of their needs.
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In connection with the growing size of the market of goods and services the total household consumption tends to increase, which is one of the main elements of the overall gross domestic product of a country7. The level of household consumption, however, depends to some extent on the relationship between population growth and rising production. The important thing is that the growth rate of output of goods and services was sufficient to ensure adequate living standards for growing population. In the case of faster pace of population growth than the growth rate of output of goods and services the reduction of the standard of living occurs and vice versa. If the pace of growth in production of goods and services exceeds the rate of population growth, on the one hand securing or raising living standards of population occur and on the other hand a country can sell the surplus of its production on foreign markets, which will have a positive effect and impact on trade and balance of payments of the country. Ultimately, there is a GDP growth as well as GDP growth per capita.
Population growth can contribute to creating opportunities for increased investment in production and can stimulate savings. If there is a growing population, it is necessary to secure and increase production to maintain or increase the living standards and to meet the needs of the bigger population of the country. Growth of production may be ensured by supply of additional investment in manufacturing sector coming from domestic sources. In the absence of domestic investment, the country may seek to attract foreign investment. However, there must be careful consideration to avoid the influence of foreign investment to disrupt the balance of payments. The entry of foreign investment into the country means an inflow of money into the country, so the balance of payments (the capital account) is, ceteris paribus, positive. However, after starting the production, there is the outflow of money from country in the form of profit, remittances etc. at the current account, which may cause deficit of balance of payments. It is therefore necessary for production covered by foreign investment, to be offset by growth of exports of such production in the current account, which will lead to a balanced balance of payments. If the export is higher than the outflow of money, balance of payments will be even positive, so the international trade can contribute to further economic development of the country. In addition to investment, population growth may also contribute to making savings. On the one hand there is reduction in the level of household savings caused by more children in the family by increased expenditure on goods, services, education and health care. Increased costs reduce household savings, leading to reduced opportunities for companies to net investment and thus raise production. Here then appears as an important factor the foreign capital with which it is possible to achieve an increase in production levels. On the other hand, the fact that population growth leads to increased investment in production, it allows also increasing household savings. Increased
7 In developed countries, consumption of households forms approximately two thirds of GDP. Other components include investment of firms, government spending on purchasing goods and services and net exports (difference between exports and imports).
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production enables to assert the benefits of economies of scale. Increased production enables companies to reduce prices of such scale production, which leads, in the case of unchanging income of households to increase savings rates. This leads to the expansion of investment opportunities of firms from domestic sources and to further increase production. Increase of the production has a beneficial impact on employment; households have more money for consumption and savings, which ultimately leads to growth of GDP and in particular to the growth of GDP per capita.
Population growth also affects the overall size and growth of the workforce in the national economy. Size and growth of the workforce is one of the determinants of savings and investment needs. In the event that investment growth is lagging behind the growth of the workforce and the technology provided is constant there is a tendency of decline in labor productivity. This subsequently affects the lag in output growth for population growth, which ultimately will lead to a decline in GDP per capita. It is important that investment growth was in line with the growth of the workforce, as the basis for economic growth of the country is GDP growth. In the event that the country is unable to start the growth of investment in production from its own resources, it must attract foreign investment to offset lagging growth rates of domestic investment behind the growth of the workforce. On the other hand, investment growth may have a negative impact on employment, which may lead to substitution of capital for labor. It is therefore important to maintain a reasonable share of capital and labor so that the share does not negatively affect the overall employment and output growth at the same time.
Developing countries are often characterized as a traditional economy, where working practices have been passed down from generation to generation. This is not a secure technological progress and the status of countries in the world economy will be gradually reduced and will continue to fall between the economies of such countries and economies in countries where technological progress is the engine of economic growth. In the absence of technological progress, population growth gradually increases the pressure on the environment, particularly the exploitation of natural resources. This pressure is in the event of increased production per capita in the country, even bigger and country needs to implement technology that releases the pressure. Many developing countries yet lack sufficient natural resources, and therefore they must import them. If they do not use the latest or newer technologies, they unnecessarily consume raw materials and spend more money on their purchase, which negatively affects their overall balance of payments and external economic balance. Rapid economic growth in China, which requires higher energy consumption, forced to build new coal plants, which provide enough energy for Chinese enterprises. However, coal has a greater impact on the environment than using oil, whose consumption in China increased significantly in recent years. China will incur, due to use of obsolete technologies, in the future additional costs for environmental rehabilitation, which should be
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avoided using new combustion technology of oil, which does not have such a negative impact on the environment.
Population growth and increasing pressure on natural resources may stimulate technological change, which will lead to the sustainable environment. New less energy-intensive technologies allow the country to save considerable funds to purchase raw materials. Saved funds may, if appropriate and effective government policy is carried out, turn to investment that can boost economic development of the country.
Conclusion
Relations between population growth and economic development of a country are not self-developing, but they are interlinked, and therefore it is not possible to consider the impacts of these relationships separately. Population growth has an impact on consumption growth (a shift of demand for the goods and services), which affects the whole range of market of goods and services. Dynamically, over change in time, there is the adjustment of supply at market of goods and services, which also moves to the right. This requires from the companies increased demand for labor, which has an impact on employment. Higher employment growth has an impact on the productive potential of the country and the investment and savings. Population growth also has an impact on the overall size (supply) of the labor. Increased investment in production means that even if employment growth occurs there is adequate and enough capital for labor, so there is no change in labor productivity and total production of the country can grow. Increased production investment stimulates innovation and new discoveries and the use of new technologies in the production process. This will ultimately also affects the environment, which is less burdened, and natural resources may be exploited in accordance with sustainable development principles, and are maintained for the use of future generations. It may be seen that the individual relationships between population growth and economic development are developing dynamically and cannot be studied and observed separately. In conclusion, the impact of population growth occurs on the one hand to initiate a positive economic development of the country and on the other hand, economic development may positively influence population growth in the country in a way of reducing the birth rate and fertility to some extent, thereby stabilizing the population in the long term.
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