Assuming natural resources are not a limiting factor, can a country's economy keep growing if the country's population is not growing? What about the global population?
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6 Answers
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Yes, there can be economic growth without population growth.
As a reminder: gross domestic product (GDP) is the total value of all of the goods and services produced within an economy over a period of time (usually a year). GDP growth is simply the tendency for the GDP to increase over time.
Roughly speaking, there are two ways for GDP to increase. The first is for each worker to keep producing the same stuff, but to increase the number of workers (i.e. population growth). But the second is to keep the population the same and increase the amount produced by each worker. This increase in productivity might happen because
- workers become intrinsically more productive (i.e. through education)
- workers have better tools to work with (e.g. through technological progress).
If you live in a subsistence society in which people tend the fields by hand and produce 100 bushels of grain per year and then someone invents a combine harvester that allows them to produce 500 bushels per year then the output of the economy will increase even if the population stays the same.
answered Jan 3, 2017 at 19:44
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$\begingroup$ But if the population stays the same, no one would need 500 bushels, or the price per bushel will drop, hence no growth, no? $\endgroup$– SparklerJan 3, 2017 at 19:47
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3$\begingroup$ That means all the needed bushels are made with half the labor, letting people create, sell, and purchase other products. $\endgroup$ Jan 4, 2017 at 2:30
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4$\begingroup$ @kbelder is right. If only 100 bushels are needed then we can satisfy the population with only 1/5th of the labour, freeing the other 4/5ths to build something else. Alternatively, we might decide that people just want to eat more grain than they were doing before (note that people in the west today eat far more than they did in the distant past). Also, note that GDP growth is often expressed in real terms, meaning changes in price do not affect GDP. $\endgroup$ Jan 4, 2017 at 13:16
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It is possible for a country to have economic growth without population growth. Three sources of economic growth are:
- Accumulation of productive capital, enabling a labour force of the same size and the same average skill level, using the same technology, to produce more output;
- Improved education to raise the average skill level of labour;
- Improved technology.
(These sources are not entirely independent, since the application of new technology often requires new types of capital equipment and new skills.)
The absence of population growth does not prevent any of the above, since it does not limit the proportion of current output a country chooses to devote to capital investment, education and technological innovation.
answered Jan 3, 2017 at 19:47
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$\begingroup$ I assume current output depends on consumption and vice versa, so without population growth, what would happen to the consumption of the said output? $\endgroup$– SparklerJan 3, 2017 at 19:51
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1$\begingroup$ A couple of points. 1) Current output does not depend only on consumption, which is only one component of aggregate demand, investment in capital being another. 2) Economic growth is likely to result in growth of consumption per capita, so consumption can grow even if population is stable. $\endgroup$ Jan 3, 2017 at 20:10
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In short, the answer is yes.
I gave an answer to this question that should explain the intuition behind such an answer. It primarily comes from understanding what the GDP equation is.
In economics, we commonly use the formula for GDP as a Indicator of "economic growth"
The GDP formula is: GDP=C+G+I+NX
Where C is equal to all private consumption, or consumer spending, in a nation's economy, G is the sum of government spending, I is the sum of all the country's investment, including businesses capital expenditures and NX is the nation's total net exports, calculated as total exports minus total imports (NX = Exports - Imports)...
So if there is no population growth we can still see economic growth in terms of investment, goverment expenditure and a nations net exports.
Hope this helps.
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1$\begingroup$ This answer would be improved by more prominent recognition of the importance for sustained economic growth of increasing productive capacity (you do mention capital accumulation and technology, but only towards the end of the answer you link to). $\endgroup$ Jan 4, 2017 at 9:20
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1$\begingroup$ This answer if grossly misleading. The definition of GDP is an accounting decomposition, not a statement in which growth in one of the composites causes growth of the total. $\endgroup$– TobiasJan 9, 2017 at 19:33
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$\begingroup$ @EnergyNumbers thank you for pointing this out. I edited the title of the question. $\endgroup$– EconJohn ♦Jan 12, 2018 at 17:54
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1$\begingroup$ Unfortunately this is a bad answer, contributes to economic illiteracy, and I have down-voted it. Here's why: In addition to the important point already made by @Tobias above: This answer (1) completely misapprehends the nature of economic growth; and (2) seems to suggest that any changes to $C$ -- but not to $G$, $I$, or $NX$ -- must somehow depend on (or even require) population growth. $\endgroup$– user18Jan 14, 2018 at 4:08
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$\begingroup$ @KennyLJ, I appreciate that you argue with this point, everyone benefits from such critisim. If I understand you correctly, you are of the opinion that it is possible to have an increase in aggregate consumption $C$ while holding the same number of consumers fixed? $\endgroup$– EconJohn ♦Jan 14, 2018 at 5:26
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I would rather say no. In an endogenous growth model (like Schumpeterian model), you can have a constant population with a sustained growth rate at long term.
An example :
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Yes, I would say so. If there is a stable increase in technological progress and productivity over time, the efficiency of the work force would increase, leading to current goods being produced more efficiently. This opens up space for new, higher-quality goods and services to be introduced into the market, which would undoubtedly grow the economy and likely increase consumption per capita.
It seems unlikely to me, however, that such an economy would be able to maintain a fixed population in the long run. There would likely be an increase in the standard of living and life expectancy of the population.
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No it can not. Obviously in the short term an increase in productivity through technology or upskilling the workforce can fuel economic growth,as can other factors, but not indefinitely. Population growth is the key. For example: How could the world in the beginning of the 19th century with a population of just 1 Billion have developed into a world with a GDP of $126 Trillion by 2017 if the population had not grown (now over 6 Billion). I believe the answer is "it could not". Our modern day economy depends on production and consumption and no matter what equations you choose to use, at the end of the day you still need PEOPLE to produce and consume in increasing amounts for there to be sustained growth.
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$\begingroup$ You're answering with "global world population", whilst the question was, in my opinion, to a country's population. Given a country with a small population growth, exports and external population growth could ensure sustained growth via exports while the country's population is stable. $\endgroup$ Jan 12, 2018 at 11:29
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$\begingroup$ Originally I actually meant global economy and population $\endgroup$– SparklerJan 12, 2018 at 12:40
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1$\begingroup$ (-1) So technological growth is limited but population growth is not? $\endgroup$– GiskardJan 14, 2018 at 18:58
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$\begingroup$ I think this answer ignores the real effect that technological progress can have on the efficiency of the marginal worker. Furthermore, as I argued in my answer, I think it's very unlikely that such a country would be able to maintain a fixed population in the long run. So you should also consider the reverse-causation effect that economic growth has had on population growth via the channel of technological progress. $\endgroup$ Jan 21, 2018 at 18:40