In their article, “Aggregate Population and Economic Growth Correlations: The Role of the Components of Demographic Change,” Allen Kelley and Robert Schmidt (1995) examine the role of demographic factors in recent studies which showed a negative correlation between population growth and economic growth during the 1980’s. Throughout the 1960’s and 1970’s, studies had repeatedly shown that the relationship between population growth and economic growth was “nonsignificant.” Yet, new studies in the 1980’s revealed that there was a negative correlation between the two factors. Kelley and Schmidt attempt to empirically prove, based on a data set of three growth periods (1960-70, 1970-80, 1980-90) and 89 countries with populations over one million, whether the newly observed negative correlation between increases in population and economic growth is caused by changes in the population growth coefficients or the actual demographic components of population growth.
One of the most important factors in measuring population growth is crude birth rate (CBR), which measures the number of births for every one thousand people. Previous studies, such as Blanchet (1988), had no found no statistically significant relationship between CBR and per capita output growth. Kelley and Schmidt found that an increase in CBR did reduce economic growth. Young children are net resource takers and an increase in CBR leads to increased savings and dependency in an economy. Increased savings serve to dampen economic growth. Kelley and Schmidt found that the effect of the CBR became increasingly negative in the 1980’s, especially in less-developed countries (LDCs). The negative effect of the CBR becomes even more apparent when past births, measured by the CBR-15, are factored out.
Lagged births, which impacted economic growth negatively in the 1960s and 1970’s, had a positive effect on economic growth in the 1980s. Kelley and Schmidt hypothesize that the positive effect of lagged births is because labor force entrants in the 1980s were healthier and better educated than their predecessors and thus had a greater positive impact on the economy.
The impact on economic growth of decreases in the crude death rate (CDR) depends on the economic development of the country being analyzed. In less-developed nations, a decrease in CDR increases economic growth as the reduction in mortality rate is concentrated in a younger, working-age, generation. In developed countries, a decrease in the CDR has a less positive, sometimes negative, effect on economic growth. The reductions in CDR are concentrated in the retired cohort who do not contribute to the economy through the labor force but also require relatively high health expenditures. The impact of changes in CDR depends on the relative age structure of a country.
Kelly and Schmidt’s study shows that the impact of population growth on the economy as a whole is not necessarily negative or positive. Population growth has both positive and negative effects that vary over the short and long term. The impact of population growth on economic growth depends on the demographic components responsible for the increase in population growth.
“Aggregate Population and Economic Growth Correlations: The Role of the Components of Demographic Change” by Allen Kelley and Robert Schmidt in Demography, Vol. 32, No. 4, November 1995, pp. 543-555.