Econ 2013 Development Economics

Human Resources:
Population

1
 Human Resources: Population
• Introduction
• Theory of Demographic Transition
• Macro consequences of Population
Growth
• Microeconomic causes of high fertility
• Market failure, social norms and fertility
• Population momentum
• Population Policies
2
China and India account for what percent of the
world’s population :

a) 13%

b) 35%

c) 45%

3
Introduction: Population Growth

• World population: 8.3 billion as of Jan 2026.

• Approx. 100 million people more every year

• Unevenly distributed

• Proportion of world population living in DCs is

falling, while in LDCs is rising

• Check World population:

• [Link]
4
The Demographic Transition: Cause or
effect?

5
The Demographic Transition in England
& Wales 1750-2000
40
35
30
25
20
15
10
5
0
1750 1800 1850 1900 1950 2000
Death rate Birth rate

Birth rate (births per thousand of population),

Death rate (deaths per thousand of population)

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The Demographic Transition in Sri Lanka

45
40
35
30
25
20
15
10
5
0
1900 1920 1940 1960 1980 2000 2020

Death rate Birth rate Death rate (proj) Birth rate (proj)
7
Source: United Nations

7
The Demographic Transition

8
The Demographic Transition : summary
• Stage I: High birthrates and death rates

• Stage II: Continued high birthrates, declining death

rates

• Stage III: Falling birthrates and death rates,

eventually stabilizing

9
World Population Growth, 1950–2050

Source: Population Reference Bureau World Population Data Sheet 2012, page 4; data are drawn from United Nations Population Division, World Population Prospects: The 2010 Revision (2011), medium-variant
estimates.
 Births Per Woman: Fertility Rate by Income
Group, 1990 and 2020
Country Group 1990 2020
Average
World 3.3 2.4
Low income 6.3 4.7
Lower Middle 4.2 2.6
Income
Middle Income 2.6 2.2

Upper income 1.9 1.5

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Source: Todaro & Smith for 2017 and The World bank, WDI for 2020.
Consequences of Rapid Population
Growth

12
 Consequences of Population Growth
Population-Poverty Cycle: Solow Growth model

• Using Solow Neoclassical (exogenous) growth model :

• The model starts with a neoclassical production function
Y= f(K, L)

• Ass. CRS, and multiplying by (1/L); output per worker=

Y/L = F(K/L), i.e. y = f(k)

• From the production function: output per worker is a function

of capital per worker.

• The production function assumes diminishing returns to capital

in this model, as denoted by the slope of the production
function.
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Solow growth model: Cont’d
• Now, we examine the link between savings and growth in
capital. The change in the amount of capital per worker is the
difference between savings per capita and capital
accumulation:
Δk = sy - (n+d)k
where n = population growth rate; d = depreciation; S =
savings rate; sy= savings per capita. Capital accumulation
depends on population growth rate and depreciation.

which is the fundamental Solow equation. i.e. excess of savings

over required investment.

So, capital per worker is a function of :

k=f (s, n, d)
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The Solow growth model diagram
Output (n + d) k
per
worker
(y)
y = f(k)

y0
sy

k0 Capital per worker (k)

A is the “steady state” in which output per worker is constant.

Total output grows at the rate n, the rate of population growth.
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 The Solow growth model diagram
Output (n + d) k
per
worker
(y)
y = f(k)
y2
y0
sy
y1
A

k1 k0 k2 Capital per worker (k)

if capital per worker is at k1, s per worker is > the amount needed to maintain a steady
level of capital, & output per worker increases from y1 to y0.
if k is at k2, k is falling because investment is not enough to combat population growth
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& depreciation. Output per worker falls from y2 to y0
 The Solow growth model diagram
Output
(n1 + d) k
per
(n + d) k
worker
(y)
y = f(k)

y0
sy
y1

B A

k1 k0 Capital per worker (k)

increase in population growth rate to n1 leads to a lower income y1

(a reduction in population growth would lead to higher y)
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Causes of Population Growth
1) Malthusian Theory (Population Trap)
• Food supplies grow according to an arithmetic
progression; population follows a geometric
progression.
• Malthusian positive checks (wars, disease, famines) will
inevitably provide restraining force on pop growth.
• In pre-industrial economies, higher income per capita
raises fertility and population growth.
• If income rises above this point → popula on grows
faster than output → income per capita falls back.
• If income falls below it → popula on growth slows
(higher mortality/lower fer lity) → income per capita
rises back.
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The Malthusian Population Trap

Points A and C are population traps, but Point A is a low equilibrium population trap
19
Criticisms of the Malthusian Model
• Ignores technological progress:
Sustained improvements in productivity can raise income
per capita without being fully offset by population growth,
especially after industrialisation. (see next figure)

• Weak empirical relationship:

There is no systematic positive correlation between
population growth rates and levels of income per capita in
modern data; in many cases, poorer countries do not grow
faster demographically than richer ones.

• Implication:
The Malthusian model helps explain pre-industrial
dynamics, but fails to account for modern economic growth
and demographic behaviour.
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How Technological Progress Allows Nations to Avoid the
Population Trap

21
Causes of Rapid Population Growth

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2) Causes of High Fertility in Developing
Countries
• The Microeconomic Household Theory of Fertility
▫ Individual or family decision making is the principal
determinant of family size
▫ The interplay between microeconomic
determinants of family fertility are understood
using theory of consumer choice

• Fertility decisions (family size) are taken at the

microeconomic level by households. It is a rational
economic decision of “demand for children.”

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 Microeconomic Theory of Fertility

• Why are there so many children in poor households?

• children are an “economic investment” rather than a
“consumption good”
• the “expected return of the investment” is given by
child labor and financial support for parents in old age
• In developing countries, parents have children up to the
point at which marginal economic benefit = marginal
private cost

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Fig 9A: The Microeconomic Theory of
Fertility
MB
MB & MMC
MMC of
child
services

C* Number of
surviving children
Where: MB is the marginal benefit of an additional child
MMC is the marginal maintenance cost of an additional child 25
 Fig 9B: The Microeconomic Theory of Fertility

MB & MMC2
MB
MMC of MB2 MMC
child
services

C** C* Number of
surviving children

When family‘s income increases: MB falls; MMC increases

and fertility falls. 26
The Microeconomic Theory of Fertility
Demand for Children :

Cd = f (Y , Pc, Px, tx ), x = 1,..., n

Under neoclassical conditions, we would expect
∂Cd ∂ C d ∂Cd ∂Cd
<0
>0 <0 >0
∂Y ∂Pc ∂Px ∂tx

Y: Household income; Pc is net price of children

(cost); Px: price of all other goods; tx: tastes for other
goods
30

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Why fertility falls when income rises

• If people value children as normal goods, as

people’s incomes rise:
• An income effect: when people get richer, they
can afford more of everything

• A substitution effect: the price/cost of children

increases as well- become relatively more
expensive

• Total effect: depends on which of these two

effects is stronger

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Market Failure, Fertility
and Social Norms
Fertility and market failure
• Missing markets:
▫ provision of old age support

• Information deficiency:
▫ contraception

• Externalities:
▫ cost borne by society is much higher than that borne
by the family

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 What model for the household?
• In the “unitary” model of the family, the only things
that should matter for decision should be
– Family overall income
– Prices of things (including opportunity costs etc.)
– Information available to anyone in the family
• However, if the family is not unitary, and instead the
members bargain between themselves for a bigger
share of the pie, we should see other things appearing:
– Private Information (if people hide some things from
each other)
– Factors that affect the bargaining power of individual
family members. 31
Do poverty-reduction programs influence
fertility? Todd et al. JPopE(2012)

• Evaluating the impact of poverty-reduction program on

fertility is complicated.
• They examine the impact of conditional cash
transfer(CCT) program.
• CCT programs most often provide funds directly to
mothers, or the principal female, and benefits are tied to
household compliance with a range of activities related
to investments in the human capital of household
members, especially that of children. In some cases,
benefit amounts have been linked to the number of
children in the household, but usually only for older
school-aged children. 32
Do poverty-reduction programs influence
fertility? Todd et al. JPopE(2012)
• Examine the Nicaraguan CCT program which offers cash transfers
to poor families.
• The pilot phase of the program began in 2000 and included an
experimentally designed evaluation that collected household
panel data over a period of 4 years. The experimental design
provides an opportunity to estimate the impact of the program
on birth spacing.
• This paper explores birth spacing as a short-run indicator of
fertility.
• They find that the CCT has reduced the odds of births occurring
by 32%. The program reduced the hazard of a birth, indicating an
increase in birth spacing.

33
Does private information matter? The case of
fertility: Lusaka, Zambia ( by Ashraf et al. AER 2014)
• Many women report hiding contraceptive from their
husbands
• Randomly assigned a voucher for a quick appointment
with family planning nurse either: To wife alone or To
wife and husband together.
• Are women more likely to take up the voucher when
they are spoken to alone? Or when they are spoken to
with husband? What could we expect?
• Would an intervention involving men and women
together have a larger or smaller effect than an
intervention that involves just women?
• Important policy question: should men be involved or
left out? 34
Experimental Design (Ashraf et al. AER
2014)
• Argue that household decision-making over fertility
is characterised by moral hazard since most
contraception can only be perfectly observed by
the woman.

• Randomly assigned a voucher for a quick

appointment with family planning nurse in Zambia
either
– To wife alone
– To wife and husband together.

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Findings (Ashraf et al. AER 2014)

• They find that women given access with their

husbands were 19 percent less likely to seek family
planning services, 25 per cent less likely to use
concealable contraception, and 27 percent more likely
to give birth.

• However, women given access to contraception alone

report a lower subjective well-being, suggesting a
psycho-social cost of making contraceptives more
concealable

36
Social Norms and Fertility in
Bangladesh
Munshi and Myaux (2006),
Journal of Development Economics.
Social Norms and Fertility in Bangladesh:
Munshi and Myaux (2006), JDE
• Social norms play a role in setting an equilibrium
fertility rate.

• If families follow local customs about fertility - modelling their

own behaviour on that of their neighbours - the community
may be trapped at a higher fertility rate than would prevail if
they could manage a change in social expectations

• Excellent data collected twice annually over an 11-year period

in Bangladesh– a thorough long-term family planning program
introduced throughout 70 villages and promoted door to door
to each religious group with equal intensity

• An example of (policy) intervention – provided family planning

to examine effects on fertility behaviour. 38
Social Norms and Fertility in Bangladesh: Munshi &
Myaux (2006)
• They found that a woman's contraception use
"respond strongly to contraceptive prevalence within
their own religious group in the village, cross-religion
effects are entirely absent in the data."

• This held despite the fact that "all individuals in the

village have access to the same family planning
inputs," and even when the people are otherwise
very similar.

• Thus the findings are "consistent with the view that

changing social norms are driving changes in
reproductive behaviour in these communities." 39
Conclusion
• Can not ignore the role of social norms

• Excellent example of economists’ use of field

interventions
Population Momentum
Population Growth and Poverty

• High population growth traps individuals,

communities and even entire countries in poverty.

• The world’s poorest countries tend to have the largest

family sizes and fertility rates.

• Gary Becker: There is a trade-off between the

quantity–quality of children: a reduction in fertility
would lead to more human capital investment per
child.

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Population Momentum
• Population momentum is the tendency for changes
in population growth rates to lag behind changes in
childbearing behaviour.

• Policy interventions to reduce population growth

takes long time…a generation at least
Population Momentum

Generation Number of Average Total

adult couples number of Population
children
per couple

1 50 4 300
2 100 4 600
3 200 2 800
4 200 2 800

High birth rates cannot be altered overnight 44

The future....
• World population will rise from 8.3 billion in 2026
to over 10 billion by around 2050.

• A country’s population will double in 28 years

approx. if growing at 2.5% (rule of 72).

• The problem of population growth is not simply a

problem of numbers, but a problem of provision of
basic needs for the growing population....

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