Chapter 9 — Population Growth & Economic Development

Debraj Ray · Development Economics · Simple Notes

1. Basic Concepts

Key Definitions
• Birth Rate — Number of births per 1,000 people per year.
• Death Rate — Number of deaths per 1,000 people per year.
• Population Growth Rate — Birth rate minus death rate (expressed as %).
• Total Fertility Rate (TFR) — Total children a woman is expected to have in her lifetime.
• Age Distribution — Share of population in each age group (0–15, 15–64, 65+).

What the data shows (Table 9.1)

• Very poor countries (e.g. Mali, Malawi): BOTH birth and death rates are high.
• Middle-income countries: Death rates have fallen but birth rates are still high → fastest population
growth.
• Richer or policy-active countries (China, Sri Lanka, Korea): Both birth and death rates are low.
• General trend: As income rises, death rates fall first, then birth rates fall later.

Age Distribution — Important Points

• Developing countries are much younger than developed ones. Africa: ~44% under 15. Europe:
~19% under 15.
• A young population keeps birth rates HIGH (more people of reproductive age) and death rates
LOW (few elderly).
• Important exam point: A country can have higher age-specific death rates in every age group than
another country, yet still have a lower OVERALL death rate — simply because it has a younger
population.

Population Inertia
• High growth → younger population → high birth rate & low death rate → continues high growth.
This is the 'echo effect.'
• Even if a country successfully lowers its TFR, population will still OVERSHOOT the target before
stabilising — because large youth cohorts are already entering reproductive age.
• Analogy: Like trying to stop an express train suddenly.

2. The Demographic Transition

The demographic transition describes how countries move from high birth + death rates to low birth +
death rates. It has three phases:

Phase 1 — Pre-Modern
• Both birth rates AND death rates are high.
• Famine, plague, and war kept death rates high. Population growth was very slow.
• Malthus wrote about this period — any income surplus was eaten up by more births.
Phase 2 — The Transition (Population Explosion)
• Death rates start falling (better sanitation, medicine, food supply).
• Birth rates REMAIN HIGH due to inertia.
• Result: population growth rate RISES sharply — population explosion.
• This is the phase most developing countries are currently in.

Phase 3 — Modern
• Birth rates eventually fall to match low death rates.
• Population growth rate declines. Developed world is now at ~0.7% per year.

Developed vs. Developing Countries — Key Difference

• Developed countries: Transition was SLOW (took centuries). Death rates fell gradually through
their own innovations. Birth rates never got extremely high (European late-marriage norms).
• Developing countries: Death rates fell SUDDENLY and FAST — antibiotics, DDT, WHO programs
were copied, not invented. Birth rates stayed high. Transition is much more compressed and intense.

3. Why Birth Rates Stay High — Inertia

Macro-Inertia (population level)

• Young age structure means large numbers of young people continuously entering reproductive
age.
• Even if per-woman fertility (TFR) falls, the overall birth rate stays high because so many women are
having children.

Micro-Inertia (household level)

Three main reasons at the household level:

(a) Missing Markets — Children as Old-Age Insurance

• In developing countries, social security, pensions, and insurance markets barely exist, especially
outside the formal sector.
• So children serve two purposes: (1) Consumption good — joy of having children. (2) Investment
good — support parents in old age.
• The worse the alternative (no pension, no insurance), the more children parents want.

The Old-Age Security Model:

• p = probability a single child will actually support parents (accounts for: child dying, child not
earning enough, child abandoning parents). In poor countries, p can be as low as 1/2.
• q = minimum acceptable probability of receiving support from at least one child. Most people want q
≥ 9/10.
• Formula: 1 − (1−p)■ > q. If p = 1/2 and q = 9/10, parents need at least 4 children. If q = 95/100, they
need 5.

(b) Gender Bias

• In many societies, old-age support is expected from SONS only.
• This effectively halves p (only 50% chance any child is a boy), which nearly DOUBLES the required
number of children.
 • Example: If p=1/2, q=9/10, and parents want a son to support them → need 8 children on average!
• Two types of bias: Observable bias (unequal treatment — lessens with development) and Intrinsic
valuation bias (seeing women as less capable of support — can worsen with development as
agriculture declines).

(c) Information Lag — The Three Generations Story

• People base fertility decisions on their parents' experience, not current statistics.
• Even when death rates have fallen sharply, couples still 'remember' the high mortality their parents
faced and over-produce children.
• Example from the chapter: Umed Singh in Rampur village — his father lost 6 of 9 children. Despite
living a safer life as a policeman, Umed Singh kept having children out of fear. His daughter, the third
generation, planned only 3 children — finally updated.

Hoarding vs. Targeting

Hoarding: Parents must decide on all children UPFRONT, before knowing outcomes.
• Happens when the main uncertainty is adult factors (child not earning enough, abandonment).
Can't 'wait and see' — need to stockpile children in advance. → Higher fertility.

Targeting: Parents can decide child-by-child sequentially.

• Happens when infant mortality is the main uncertainty. If child 1 survives, maybe don't need child 2.
Can wait and see. → Lower fertility.
• A fall in death rates helps shift societies from hoarding to targeting — reducing fertility.

Costs of Children and Income Effects

• Direct costs: food, clothing, schooling, healthcare.
• Indirect/Opportunity costs: time spent raising children = wages foregone, especially for women.

Effect of income on fertility (Figure 9.1):

• Non-wage income rise (e.g. land rent): Budget line shifts outward in parallel. Children are 'normal
goods' → income effect → FERTILITY RISES.
• Wage income rise: Budget line shifts out AND rotates (opportunity cost of children goes up).
Income effect (↑ fertility) competes with substitution effect (↓ fertility). Net effect is AMBIGUOUS —
but fertility rises less than with rental income.
• Female wages specifically: Rise in female wages has the strongest effect in REDUCING fertility,
because women bear most child-rearing time costs.
• Sweden example (Schultz): Butter boom → more demand for female dairy workers → higher
female wages → fertility fell. About 1/4 of Sweden's fertility decline 1860–1910 explained by rising
female wages.

4. Is Fertility Too High? Private vs. Social Optimum

Three reasons why private fertility choices may exceed the socially optimal level:

Reason 1 — Information Failure

• Couples don't know death rates have fallen (generational information lag).
• They make rational decisions based on outdated information → produce more children than
needed.
Reason 2 — Ex Ante vs. Ex Post
• A couple may rationally choose 5 children given the uncertainty — but many children survive,
leaving them with 'too many' ex post.
• Their choice was rational given the uncertainty; the outcome was not ideal. No contradiction.

Reason 3 — Externalities (Most Important)

Private cost of having a child is LESS than the social cost → people have too many children.

• Free public education/healthcare: Family doesn't pay the full social cost of educating/treating an
extra child → over-produces.
• Environment: Fisheries, forests, groundwater are underpriced → lower effective cost of raising
children → more children.
• Job competition: Having more children = sending more job-seekers into a fixed job pool. Private
benefit (double your chances) vs. social cost (everyone's chances fall). Classic externality.
• Joint family externality: In joint families (brothers living together), child-rearing costs are shared with
the other family. Your variable cost falls → you have more children than optimal. Key idea: it's the
MARGINAL cost (slope), not total cost, that determines fertility decisions.

Social Norms
• Communities develop high-fertility norms over centuries (early marriage, son preference, ancestor
worship). These persist even after the economic rationale disappears.
• Changing norms requires everyone to shift together — hard to do individually.
• Family planning programs help by legitimising lower fertility as socially acceptable — not just
providing contraception.
Matlab Experiment (Bangladesh, 1977):
• 70 treatment villages got family planning services. 79 control villages got nothing.
• Contraceptive use in treatment villages: 7% → 33% in just 18 months.
• By 1980, fertility in treatment villages was 2/3 of control villages.
• Lesson: The program signalled that small families are acceptable — a social norm shift, not just
contraceptive supply.

5. Effect of Population Growth on Economic Development

Negative Effects
The Malthusian View:
• Malthus: Any income rise above subsistence triggers more births → wages fall back to subsistence.
Population is self-regulating at a miserable minimum.
• Modern critique: People are rational — as development occurs, costs of children rise and benefits
fall. Fertility actually DECREASES with development (opposite of Malthus). Malthus only fitted the
pre-modern world.

Harrod-Domar Model:
• Formula: s/θ = (1+g*)(1+n) − (1+δ)
• s = savings rate, n = population growth, δ = depreciation, g* = per capita income growth rate.
• Conclusion: Higher n → lower g*. Population growth UNAMBIGUOUSLY hurts per capita growth.
• Limitation: Treats capital-output ratio as fixed, so ignores that more labour also raises output.
Solow Model:
• Allows for labour-capital substitution. Long-run growth rate depends ONLY on technological
progress — NOT on savings rate or population growth.
• BUT: Higher population growth has a LEVEL EFFECT — it permanently shifts per capita income
onto a lower trajectory.
• Why: More workers → more capital is needed just to maintain the same capital per worker →
steady-state capital per worker (k*) falls → lower income per person.
• In short: Growth rate is unaffected, but the economy is permanently poorer.

Population and Savings:

• Higher population growth → more young people → higher dependency ratio → lower savings rate.
• Lower savings compounds the negative effects in both models above.

Population and Inequality/Poverty:

• The poor tend to have more children (greater need for old-age support, higher infant mortality,
lower opportunity cost).
• Richer households prefer fewer, better-educated children (quantity-quality trade-off).
• So rapid population growth hurts the poor disproportionately.

Population and the Environment:

• More people → more pressure on fisheries, forests, groundwater, ozone layer.
• Unlike capital, you can't 'produce' more of these by having more people. Effects are direct and
immediate.

Positive Effects
1. Demand-Driven (Boserup, 1981) — Necessity is the mother of invention:
• Population pressure forces people to innovate — especially in agriculture.
• Evidence: Dense countries have more irrigation, fertiliser use, and multi-cropping than sparse
countries.
• Limitation: Hard to separate from income effects. Works best when the innovator IS the farmer
(early agriculture). Once innovation is done by separate firms, market demand matters more than
population pressure.

2. Supply-Driven (Simon 1977, Kremer 1993) — More people = more ideas:

• Each person is a potential source of innovation. More people → larger pool of ideas → faster
technical progress.
• Prediction: Population growth rate should increase with population size initially, then reverse after a
threshold.
• Historical evidence (Kremer, Fig 9.7): From ancient times to ~1960, world population growth rates
ROSE as population grew. The trend reversed only after world population crossed 3 billion (~1960).
• Limitation: This would predict large countries have faster tech progress — which is dubious. Fixed
by making tech also depend on per capita income, not just population size.

6. Quick Revision Summary

• Population growth rate = Birth rate − Death rate.
• Developing countries are younger → inflated birth rates, deflated death rates.
• Demographic transition: 3 phases. Developing world going through it faster but more intensely.
• Birth rates stay high due to: (1) Macro-inertia (young age structure), (2) Missing markets for old-age
security, (3) Gender bias (son preference), (4) Information lag, (5) Social norms.
• Old-age security model: Need n children so that 1−(1−p)■ > q. Higher p or lower q → fewer children
needed.
• Hoarding = must decide all children upfront. Targeting = decide one by one as infant mortality
outcomes emerge. Targeting → lower fertility.
• Female wages rising → strongest fertility reducer (opportunity cost effect).
• Private fertility > Social optimum because of: information failure, ex ante rationality with bad
outcomes, and most importantly EXTERNALITIES (public services, environment, job competition,
joint families).
• Matlab experiment: Family planning legitimises low fertility as a new social norm.
• Harrod-Domar: Pop growth directly reduces per capita income growth rate.
• Solow: Pop growth has ZERO effect on long-run growth RATE but NEGATIVE level effect
(permanently lower trajectory).
• Positive effects: Boserup (necessity → innovation) and Kremer (more people → more ideas →
faster tech progress).

Good luck on your exam!