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Conclusion Economic Growth Essay

8  Conclusion

The original motivation for this paper was a desire to understand how migration impacts on per capita growth in New Zealand. It is clear from the discussion that the existing literature is deficient in explaining this relationship. The growth accounting framework is not a complete theory of economic growth but it has provided a way to explore the pathways through which migration can impact on growth.

The evidence has shown that migration has significant impacts on labour productivity and labour utilisation but significant questions remain unanswered: what is the magnitude of this impact? What is the true nature of the causality? What are the interlinkages between the skill level of migrants, or the quantum of migration and growth? An accurate assessment of the magnitude of the impact of immigration on economic growth is likely to be unattainable given existing data. A variety of theoretical economic models can be employed but the results are a function of the assumptions that are made at the beginning, which are themselves subject to question. It is difficult to ascertain the extent to which theoretical models of immigration and growth accurately predict reality because the real world picture is confounded by other influences and by continuing policy adjustments which affect the composition of migrant flows.

It is clear that further work remains to be done on the question of migration and economic growth. The area would benefit from strong empirical work that aims to provide policy advice to government on realistic and achievable policy adjustments to improve the returns to growth, while still balancing social policy aims. This paper has captured a discussion of the literature in the area and set out a way of thinking about the questions. More detailed qualitative, but particularly quantitative work remains to be done if those questions are to be adequately answered and to ensure that the debate always takes into account migration patterns.

Overall, it is equivocal whether there is enough robust evidence to support the claim that immigration is always positive for per capita growth. This paper concurs with the observations of the OECD, which stated “there is not sufficient or detailed enough data on the behaviour of the New Zealand economy to give clear answers on the overall effects on per capita incomes of existing residents”. While the evidence suggests small positive net gains from migration, these do not necessarily stack up as an improvement in per capita growth rates. Whether immigration is positive is also dependent on which particular group of people governments are concerned about increasing the welfare of. If it is overall national welfare then the evidence does suggest immigration is positive. But if this is achieved through a lowering of the wages of native workers, albeit while potentially increasing returns to the owners of capital, this distribution of benefit may not be seen as desirable.

As this paper reflects, it may be more helpful to think about migration as an opportunity to increase GDP per capita growth, rather than as a threat that needs to be managed. It has been shown that improving participation and employment rates is likely to have a positive effect on overall GDP per capita and this paper has looked at some indicators that migrants may be making a positive contribution to labour productivity. Questions do remain, such as the expected increase in growth vis-a -vis the government investment required to increase participation and employment rates, or the extent to which the benefits would accrue to natives or to which subset of natives; but the available evidence indicates where policy efforts should be focussed. Ensuring that the settings of the migration system support the improvement of migrant participation and productivity, while balancing social cohesion concerns, is the first step towards improving the contribution of migration towards economic growth per capita. Continuing to analyse, evaluate and refine the system must be the second.

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Conclusion We have examined a diverse set of mechanisms through which population growth affects economic development. This chapter opens with a review and synthesis of our conclusions on the expected effects of a decline in the population grown rate that works through these mechanisms. It then proceeds to a discussion of how environmental and institutional contexts mediate the actions of these mechanisms a major theme of this report. The final section discusses policy implications. EFFECTS OF SLOWER POPULATION GROWTH ON ECONOMIC DEVELOPMENT Following the framework set up in the Introduction, we consider how conditions are likely to differ if a country, through a government program, were to achieve and maintain lower fertilibr than it would otherwise have experienced (with constant mortality). As noted above, such a decline would produce at every subsequent point slower population growth, smaller population size, lower population density, and an older age structure. Working through these direct demographic effects, a reduced level of fertility is also likely to produce several other changes. Slower Population Growth and Exhaustible Resources Globally slower population growth may delay the time at which a particular stage of depletion of an exhaustible resource is reached. This effect does not necessarily increase the number of people who will have access to 85

86 POPUW7ON GROWTH AND ECONOMIC DEVELOPMENT that resource; rather, it moves the consumption stream further from the present. But it is important to recognize that no single exhaustible resource is essential or irreplaceable; it is valued for its economic contribution, not for its own sake. As easily accessible reserves of natural resources are exhausted, the real cost of extraction, and hence the resource pace, rises. This price rise should stimulate the search for alternative materials. Historically, these adaptive strategies have been extremely successful. To the extent that slower population growth results in a slower rate of resource depletion, these adaptive strategies will also occur more slowly. Hence, it seems unlikely that slower population growth will allow a larger number of people, over future generations, to enjoy a given standard of living thanks to lower natural resource prices. Slower Population Growth and Renewable Resources Slower population growth, in some cases nationally and in others globally, is likely to lead to a reduced rate of degradation of renewable common- property resources such as air, water, and species of plants and animals. If significant amounts of land and forest resources are held in common in a country, they will also tend to be degraded less rapidly. These effects are likely to be more evident in the short run-in say, a decade or two. In the long run, population growth itself might create greater incentives to develop the social and political institutions necessary for conservation. Such incentives are irrelevant, of course, if the resource has become depleted beyond the point of restoration. Moreover, changes are costly and the need to bear such costs is itself a consequence of population growth. Slower Population Growth, Health, and Education Lower fertility is likely to raise average per child levels of household expenditure on health and education and thereby improve levels of child health and education. By themselves, such changes should result in a more productive labor force. Superimposed on these within-family effects is the possibility that lower fertility will alter the distribution of children among families by income class. If fertility declines are largest among high- income families, average levels of schooling and health among children could actually decrease despite an absolute improvement in measures of well-being among poor families. But if family planning programs result in larger fertilibr reductions among poorer families, the within-family gains will be accentuated at the societal level. Slower population growth is likely to raise public expenditures on schooling per school-aged child. Evidence from the educational literature suggests that

CONCLUSION 87 such a result may lead to some improvement in educational quality as measured, for example, by test scores. We do not find convincing evidence that lower fertility will result in faster growth in enrollment ratios (apart from within-family effects). Slower Population Growth and Income Unless a fertility decline is concentrated among high-income families, it is likely to lead to a reduction in income disparities among social classes. This is primarily a long-term effect (although a variety of short-tenn effects are also possible) and wows primarily by raising payments to labor relative to payments to capital and raising payments to unskilled labor relative to skilled labor. We have found little evidence that the aggregate savings rate depends on growth rates or the age structure of a population. Assuming that the savings rate remains unchanged, a fertility decline will lead to an increase in the ratio of capital to labor and, along with it, labor productivity, wages, and per capita income. The increase in the capitalllabor ratio will reduce rates of ran to capital and reduce payments to owners of capital. In the short run, more land per agricultural worker is likely to raise labor productivity in agriculture. Long-term effects may differ because of changes in the organization and techniques of production that are induced by the relative change in factor availability. These effects may reduce the short- term gains of slower growth. Slower Population Growth and Cities Win slower population growth, cities grow more slowly, both in the short and long run. Natural increase (~e excess of birds over deaths) accounts for about 60 percent of city growth today in developing countnes, and it is reasonable to expect that a decline in fertilizer levels will entail a decline in rates of natural increase in cities. Such changes reduce the demand for urban infras~uctural investments while eventually reducing the revenue base that supports such investments. The evidence on Chewer reduced national fertility levels reduce the rate of rural-url~an migration, and hence reduce He rate of grown of He proportion of He population that is urban, is unclear. A reduced rate of urban labor force grown in developing countries (most of which is a product of natural increase among the urban population) is not likely to be systematically accompanied by corresponding reductions in joblessness. However, it may increase He proportion of He urban labor force working in high-wage jobs in the modern sector of the economy and reduce He proportion working in the low-wage, infonnal sector.

88 POP CLARION GROWN AND ECONOMIC DEVEL()PMENT ENVIRONMENTAL AND INSTITUTIONAL CONTEXTS It is clear that the economic advantages of fertility reduction will vary from place to place. Environmental and climatic conditions clearly shape the local impact of population growth. In countries such as Bangladesh, where ratios of agricultural labor to arable land are already very high, there is a presumptive case that labor productivity in agriculture will decline more rapidly with added labor than if ratios were low. Nonagricultural production possibilities, and the opportunities for trade, also affect the importance of these natural features. Important as these natural features may be in conditioning the economic response to population growth, Hey appear to be far less important than conditions created by people. Many of the initial effects of population growth are negative, but they can be ameliorated or even reversed in the long run if institutional adjustment mechanisms are in place. Among the most important of such mechanisms are property rights in land and properly functioning markets for labor, capital, and goods. Such markets permit the initial effects of population growth to be registered in the fonn of price changes, which can trigger a variety of adjustments, including the introduction of other factors of production that have become more valuable as a result of the increase in population; a search for substitutes for increasingly scarce factors of production; intensified research to find production processes better suited to the new conditions; reallocation of resources toward sectors (e.g., food production) in which demand may be most responsive to population change; and so on. Of course, these adjustments may entail real costs, even when these are minimized by efficient institutions. When markets function very poorly, or do not exist, adjustments to population change are likely to be slower or to not occur at all. These are not merely theoretical notions. Some part of the current distress in Ethiopia, of the loss of 30 million lives during China's '~great leap forward" (Ashton et al., 1984), and of the problems of food production in tropical Africa during the 1970s was due to very badly functioning markets combined with rapid population grown. Even efficient markets do not guarantee desirable outcomes. The famines of 1942-1943 in Bengal and of 1973-1974 in Bangladesh seem to have been principally a result of deterioration in the income distribution-in particular, the loss of purchasing power by unskilled wage laborers-combined with speculative hoarding in food markets (See, 1981~. This kind of outcome underscores the role of the distribution of wealth and of human capital as a fundamental determinant of poverty. The potential value of government intervention for market regulation and for purposes of income distribution is widely acknowledged. Govemment policies in a variety of arenas clearly play important roles in mediating Me

CONCLUSION 89 impact of population growth. Effects of population growth on educational enrollment and quality, on rates of exploitation of common property resources, on the development of social and economic infrastructure, on urbanization, and on research activities are all heavily dependent on existing government policies and their adaptiveness to changed conditions. In short, the effects of rapid population growth are likely to be conditioned by the quality of markets, the nature of government policies, and features of the natural environment. Since the effects are so dependent on these conditions, a reliable assessment of many of the net effects of population growth can best be carried out at the national level, although some issues concerning the environment and resources can only be analyzed globally. It is of interest to briefly examine and contrast Me interplay between population grown and institutions in two important areas, China and tropical Africa. China, with its extremely low arable landlpopulation ratio, is often seen as greatly in need of population control policies in order to boost per capita agricultural income; this view is reflected in the government's severe disincentives for large families. Although it is possible Mat the resultant decline in the population growth rate has somewhat increased per capita agricultural income, these gains are probably small compared with those from agricultural reforms instituted in 1979. Over the period 1979-1984, the real per capita income of Me rural population increased 15 percent annually, and total agricultural output increased 51 percent (U.S. Department of Agriculture, 1985; Li, 1985~. In contrast, tropical Africa has a comparatively high land/population ratio, but appears to be particularly vulnerable to problems induced by population grown. Political independence and He forces of modernization came to tropical Africa later than to other areas. Although some countries in other regions also share these traits, markets are generally least well developed in tropical Africa, political factionalism is greatest, and human resource potential is least developed. In parts of Africa, sparseness of population itself may be responsible for some of these difficulties, but this explanation is implausible for such countries as Ethiopia or Kenya Obviously, slowing population growth is not a substitute for solving other problems, but it can reduce some of the more extreme manifestations of these problems while they are being solved. SUMMARY Population growth can, and often does, trigger market reactions. Many of these reactions move a country in a '`modem" direction, that is, toward better~efined properq rights, larger integrated marked, more agocultum1 research, and so on. However, He market-induced adjustments to higher

go POP ULA77ON GROWTH AND ECONOMIC DEVELOPMENT growth do not appear to be large enough to offset the negative effects on per capita income of higher ratios of labor to other factors of production. Nor is population growth necessary to achieve these forms of modernization: the fact that rates of return to agricultural research are already extremely high-in bow developing and developed countnes-implies Mat Here is little need for additional stimulus from population growth; the evolution of property rights is stimulated by many factors~population grown being only one among Rem (Binswanger and Pingali, 1984~; and the scope of many markets can be enlarged by removing made barriers. That these over devices exist does not imply a minimal role for population grown, but it does caution against advocacy of growth as the only way to achieve them. On balance, we reach the qualitative conclusion Cat slower population growth would be beneficial to economic development for most developing counties. A rigorous quantitative assessment of these benefits is difficult and context dependent. Since we have stressed the role of slower population growth in raising per capita human and physical capital, it is instructive to use as a benchmark the effects of changes in the ratio of physical capital per person. A simple mode} suggests that the effect is comparatively modest. Using a typical labor coefficient of 0.5 in estimated production functions, a 1 percent reduction in the me of labor force growth would boost the grown of per capita income by 0.5 percent per year. ~us, after 30 years, a 1 percent reduction in the annual rate of population grown (produced, say, by a decline in Be crude bird rate from 37 to 27 per 1,0003 will have raised production and income per capita to a level 16 percent above what it would otherwise have been. This would be a substantial gain, but by no means enough to vault a typical developing country into Be ranks of the developed. This simple calculation, however, does not fully reflect the complexity of Be linkages between population growth and economic development. For instance, the production function would be expected to change in ways that reduce the advantages of slower population grown. We have reviewed considerable evidence, particularly in the agricultural sector, of how technology adapts to changes in factor proportions. In most places it is reasonable to expect slower growth in the labor force to reduce the intensity of adaptive response in the form of land improvement, instigation, and agricultural research. On the other hand, the calculation does not reflect increases in production due to the healthier and better educated work force Mat would result from lower fertility. Much more sophisticated models of production and fertility have been constructed with a variety of assumptions about the nature and intensity of relationships between economic and demograph* variables (see Ahlburg, 1985, for a thorough review). None of these models embodies the more

CONCLUSION 91 recent evidence on the nature and magnitude of effects that is included here, and we are not in a position to endorse any of the models. Careful scientific research is needed both to beuer quantify and to further elucidate most of the relationships discussed in this book. Research is especially needed on urbanization and the consequences of urban growth; savings and the formation of physical capital; the effect of population grown on health, education, and the development of human capital; and the nature and extent of extemalities of childbearing. Such research would be appropriately supported by mission-oriented development organizations as well as by basic research agencies. Whether the economic problems posed by population grown are large or small, and whether they are best approached by slowing the population grown rate, depends ultimately on the costs of alternative policy responses. We now turn to outline those responses. POLICY IMPLICATIONS: THE ROLE OF FAMILY PLANNING We have stressed that population growth can exacerbate the ill effects of a variety of inefficient policies, such as urban bias in the provision of infrastructure, direct and indirect food subsidies Hat distort agricultural markets, credit market distortions, and inadequate management of common property. A fundamental solution to these problems lies in better policies outside the population arena. However, some policies may be extremely resistant to correction, even over the medium to long term. Moreover, we have found some beneficial effects of slower population grown even in the presence of well-functioning markets and other institutions. Thus, there appears to be a legitimate role for population policy, providing its benefits exceed its costs. Although educational and health policies may have indirect effects on fertility, family planning programs have been the most conventional and direct instrument of government population policy. By family planning programs, we mean He provision of contraceptive services, together with information about contraception and child spacing. The total amount spent on family planning programs in 1982 was less than $2 billion, of which international assistance represents about $330 million (World Bank, 1984:148~. By companson, total official development assistance by Organization for Economic Cooperation and Development (OECD) countries was about $27.5 billion in 1983 Should Bank, 1984:252~. In most developing countries, family planning program expenditures represent less than 1 percent of the government budget. Government support for family planning programs can have an economic and social rationale quite apart from He effect of programs on rates of population growth. ~ many societies, individual control of reproduction

92 POPUlA77ON GROWIW AND ECONOMIC DEVELOPMENT is considered a basic human right, similar in nature to good health or literacy. Lack of information about reproduction services and other services may constrain parents from achieving the* desired number and spacing of children. In such a situation, the supply of information and services will increase family welfare. Govemments can often supply information and services about reproduction more efficiently and cheaply than Me private sector, in part because large and risky investments are required and because some of Me benefits to consumers cannot be captured by the suppliers. In particular, valuable information can flow from person to person without any financial reward to the initial supplier: information about the consequences of childbearing is one example; the rhythm method is another. In this case, the private sector will underinvest in the provision of such services. The rationale for government support for family planning programs is similar to that for support of a variety of public health programs, as well as for agricultural research and extension services. F~ermore, when health services are provided by government, an additional rationale for government family planning programs is that the services can be efficiently supplied by existing health pet sonnet (World Bank, 1984~. Finally, family planning programs are likely to be of more value to lower income groups than to higher income groups, who may have beKer access to private services, so government support for these programs can help to advance equity goals If people use the services and information supplied by government family planning programs and if fertility falls as a result, an obvious case can be made that the program has increased the private welfare of users by reducing the cost of fertility control and by reducing the gap between desired and achieved fertility. This gain in private well-being is added to whatever other gains accrue on the national agenda from fertility reduction. The large fertility declines that occ~d in such countries as Mexico, Indonesia, and Thailand during the 1970s~eclines that were associated over time with intensified national family planning programs-suggest that private welfare gains from such programs are large. The large amount of unwanted childbearing in developing countries Mat was revealed by the World Fertility Survey (Boulder, 1985) suggests that such programs have considerable remaining potential to increase private welfare and reduce population growth rates. When national economic and social goals can be furthered by a reduction in fertilibr, the fact that family planning programs can achieve such reductions while increasing the well-being of users of these services accounts for milch of their Inactiveness as a policy instrument for governments in developing countries. A similar att~veness applies to removal of legal prohibitions against access to means of ferdlity control, prohibitions that pose serious obstacles to couples, reproductive behavior in many counties (Berelson and Lieberson, l979~. In sum, there is little debate about the desirability of

CONCLUSION 93 programs Hat allow couples access to easy, affordable, and effective means of family planning, even among Hose who see population growth as a neuter or even a positive influence on development (Wattenberg and Zinsmeister, 1985). When a couple's childbearing decision imposes external costs on other families-in overexploitation of common resources, congestion of public services, or contribution to a socially undesirable distribution of income- a case may be made for policies that go "beyond family planning." Such policies include persuasive campaigns to change family size norms and combinations of incentives and taxes related to family size. It is more difficult to make the case for He imposition of drastic financial or legal restrictions on childbearing. As noted above, such restrictions are likely to entail large welfare losses at the individual level; these losses would be hard to assess quantitatively, as are the possible social benefits of such restrictions. Because economic development is a multifaceted process, no single policy or single-sector strategy can be successful by itself. Thus, family planning programs by themselves cannot make a poor county rich or even move it many notches higher on the scale of development. However, family planning programs that enable couples to have the number of children they desire increase the private welfare of the people who use Heir services while reducing He burden on society of whatever economic externalities exist. And family planning programs are likely to increase He well-being of the users' children and to extend rawer Han to restrict personal choices. Thus, family planning programs can play a role in improving the lives of people in developing counties.

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