POPULATIONS GROW AS COUNTRIES GET RICHER: New evidence from both the industrialised and developing worlds

Higher national income growth leads to increases in countries' population growth. That is the central message of research by Professors Markus Brückner and Hannes Schwandt, published in the December 2015 issue of the Economic Journal.

Their estimates show that a 10 percentage points increase in national income growth over a 10-year period increases countries' population growth by around one percentage point. They find that the positive effect of income on population growth is because it leads both to higher fertility and to lower infant and child mortality.

During the past half century, the world has experienced an unprecedented increase in its population size. In 1960, roughly three billion people inhabited the planet; 50 years later, it was around seven billion – with almost one billion people added in the decade between 2000 and 2010. The World Bank projects that in the next 35 years, another 2.5 billion people will be added to the planet; over 90% of this increase in population size will be in developing countries.

While from an ecological point of view the tremendous increase in population size could be considered a success – only a thriving ecosystem can generate and sustain a large species – there are concerns about environmental, socio-political and economic challenges associated with large population expansions. This leads to the question: what is driving countries' population growth and what is the role of national income?

It is commonly known that populations in rich countries grow less than in poor countries; and that in some developed countries populations are even shrinking. What is unknown is the extent to which this negative correlation reflects a causal effect of income on population growth.

For example, the negative relationship might actually be driven by an effect that goes the other way: high population growth may keep a country's GDP per capita low, so that countries with strongly increasing populations stay poor.

An alternative explanation is technological progress: a more productive economy makes a country richer, but at the same time, it makes children 'more expensive', because of the increasing costs of childbearing and child rearing in terms of forgone earnings. Both of these mechanisms would confound and overshadow the actual effect of increasing prosperity.

To find the true causal impact of national income on population growth, the new study focuses on income changes that are certainly not affected by population growth or technological progress: changes in a country's profits from oil exports (or costs for oil imports) that are induced by changes in the world market price for oil.

For a panel of 139 countries spanning the period 1960-2007, the researchers multiply the change in the international oil price by countries' GDP shares of net exports of oil. Their results show that these changes in the so-called 'terms of trade' have a significant effect on national income growth but no effect on productivity growth.

More than two centuries ago, Thomas Malthus postulated that the increase in population size is limited by the means of subsistence. The new research supports the view that population is positively linked to income.

The findings also support economic models that assume children are 'normal goods' – that is, that fertility increases with income. Social transfers, such as unemployment benefits, should therefore be expected to increase population growth. This is particularly relevant for industrialised countries contemplating such policy choices.

Income growth arising from (the discovery of) natural resources, increases in foreign aid or migrant remittances is of particular relevance in developing countries. According to this research, these sources of income growth are likely to materialise in higher population growth in those countries.

'Income and Population Growth' by Markus Brückner and Hannes Schwandt is published in the December 2015 issue of the Economic Journal. Markus Brückner is at the National University of Singapore. Hannes Schwandt is at Princeton University.