In “The role of fertility and population in economic growth” (1994) James A. Brander and Steve Dowrick revisit an analysis of how population growth affects per capita income growth. Previous analyses of the relationship had difficulty obtaining reliable empirical results because the use of cross-national data is flawed due to heterogeneity in unobserved variables. Data quality in such studies is an issue particularly since consistent time series data is unavailable. Thus previous studies have shown both negative relationships between fertility and per capita income growth and a lack of any negative relationship. Brander and Dowrick sought to re-examine cross-national empirical data to analyze this relationship using data from Summers and Heston (1991) and from United Nations World Population Prospects (United Nations, 1992).
Brander and Dowrick’s use of time series data allowed them to more dependably treat country-specific effects as well to as address issues of simultaneity. Their analysis is consistent with the neo-Malthusian interpretation that a decrease in fertility will cause per capita income to grow. They find this happens for several reason: a decrease in birth rates leads to a period where entry into the labor force is higher than the entry rate into the dependent population causing higher output per capita; a decrease in birth rates leads to increased investment in high birth rate countries; and capital dilution.
Brander and Dowrick are able to establish a relationship between variables that allows them to estimate net direct effects of population growth on per capita income growth. In addition they are able to establish equations for estimating investment and for estimating the rate of change in the working age share of population. The authors hypothesize that several variables may affect investment including price of investment, level of per capita income, and crude birth rates.
The end result of Brander and Dowrick’s analysis is that they find the variables they studied to be more related to level of income than to income growth. They do find a significant negative relationship between fertility and per capita income growth. Declines in birth rates (decrease in fertility) correspond to an increase in labor force participation by reducing dependency; this increase in turn leads to an increase in per capita economic growth resulting in higher incomes.
Brander and Dowrick establish three avenues through which fertility affects per capita economic growth: 1) a change in the population growth rate leads to both a change in the availability of capital and natural resource per person and a change in the realization of economies to scale; 2) through changes in the population of persons of working age; and 3) through the per capita investment rate. They are quick to note that the labor force participation affect only holds in the medium run.
In their conclusion, the authors find, in the least developed countries included in the study, a statistically significant positive relationship where an increase in the working age population (due to decreases in fertility) increases per capita income growth. Analyses of the more developed countries in the study showed that investment has a strong positive effect on per capita income growth. What they consider to be their most relevant result is a statistically significant positive relationship between changes in the working age population and income growth. Thus Brander and Dowrick find that a decrease in birth rates results in an increase in income growth with the most influential factor being labor supply though other variables and mechanisms contribute to the relationship between fertility and economic growth.
Brander, J.A. and S. Dowrick. 1994. The role of fertility and population in economic growth.
Journal of Population Economics 7(1): 1-25.