Causal effect of population growth on GDP per capita increase

Question

I'm wondering if there is a logic for the causal influence of population growth on the increase in GDP per capita.

I guess,

1. increase in population as a factor of production might move aggregate supply curve to the right, lowering the price.

2. increase in population as consumers might move the aggregate demand curve to the right, increasing the price.

In both cases, the total amount may increase. But I don't understand how these reasons combine to explain the causal effect (if any!). So, why they are so worried about low birth rate?

Answer 1

Birth rate affects not only total population but also the age structure of the population. If the birth rate over many years is below the level at which the population replaces itself, the result will be a falling population with an increasing proportion of elderly and often economically inactive people. With a falling proportion of economically active people, GDP per capita is likely to be less than it would have been with a higher birth rate.

This effect can to some extent be offset by policies to encourage older people to continue working for longer, such as raising the age at which state pensions become payable.

Answer 2

You also might think about how things are changing ignoring the birth rate. People are living longer after retirement. This means that even without a change to the birth rate, there are fewer workers per retiree. Since retirees consume but do not produce, this means that per capita growth will be slower even if per worker production growth stays the same or increases.

Now add in a dropping birth rate. A dropping current birth rate means that in twenty or thirty years (thirty is an extreme case, e.g. a doctor or lawyer), we will have fewer workers per retiree. The dropping birth rate that happened thirty or more years ago is reflected in fewer workers now.

Given the increases in longevity and the comparative lack of increases in the retirement age, the economy needs an increasing birth rate to compensate. An alternative is an increase in immigration.

If we go back and look at the supply and demand curves, your original hypothesis was that increasing the supply of labor would lower prices while increasing demand would increase them. But in this situation, demand is staying high due to retirees while supply is dropping. And of course, a higher birth rate now won't help with that now. It takes twenty to thirty years. A higher birth rate now would increase consumption (children have to eat, etc.) without immediate production benefits. But some people worry about what will happen in the future.

Answer 3

Economics and Rapid Change:The Influence of Population Growth by Richard P. Cincotta and Robert Engelman, Population Action International October 1997

For more than a decade, since the 1986 release of a seminal report by the U.S. National Research Council, discussion of the impact of population growth on economic change in developing countries has languished within both the demographic and economic fields. While the linkage between demographic and economic dynamics is undeniably complex, some recent findings stand out. Despite lack of clear evidence for this relationship in previous decades, new data make clear that during the 1980s, on average, population growth dampened the growth of per capita gross domestic product, the primary measuring unit of economic growth. The negative effects of rapid population growth appear to have weighed most heavily on the poorest group of countries in the developing world during the 1980s and also throughout the two previous decades. More positively, declines in human fertility in the 1970s and 1980s almost certainly helped fuel explosive economic growth during the 1980s and early 1990s in such East Asian countries as South Korea, Taiwan, Singapore, the former Hong Kong Territory, Thailand, Indonesia and Malaysia.