The world population is currently growing significantly, although at a slower rate than in the past. Population growth could potentially have serious effects on many aspects of human existence, including income growth. In James Brander and Steve Dowrick’s article titled “The role of fertility and population in economic growth,” the authors attempt to derive an equation that will explain the relationship between population growth and per capita income growth.
Previous studies performed in this area of research have found conflicting results. The majority of findings indicate that either population growth has a negative effect on per capita income growth, or that there is a lack of a negative effect (which is different from a positive effect). However, there were flaws (mainly data problems) in a majority of these studies, making it difficult to claim that the empirical results are reliable. In contrast to most previous studies, Brander and Dowrick employ a Neo-Malthusian interpretation in their analysis. That is, their basic belief is that a decrease in fertility will lead to an increase in the growth of per capita income.
The authors spend a lot of time developing the two equations that they ultimately use in their analysis. The first equation they introduce can be used to estimate the net direct effect of population growth on income growth. This equation takes into account multiple variables, including: effective labor input per capita, fixed factors of production, elasticities of output, net effect of resource dilution, economies of scale, technical progress, and unmodelled variation (random error). A second equation introduced in this article is for investment. The authors hypothesize that investment rates may be affected by multiple factors: the price of investment, the level of per capita income, and the crude birth rates.
There are three main ways through which fertility can potentially effect per capita economic growth. First, changes in the share of the population that is of working age can effect per capita economic growth. Second, fertility can have an effect through changes in the population growth rate. This, in turn, leads to changes in the availability of capital and natural resources per capita. It may also lead to changes in the realization of economies of scale. Third, fertility can influence per capita economic growth through the per capita investment rate.
By using the two equations mentioned earlier, and these three assumptions about fertility and economic growth, the authors were able to draw their own conclusions about population growth and per capita income growth. The overall finding was that birth rate decreases precede income growth increases. Brander and Dowrick’s research indicates that this happens in three ways. First, with decreased birth rates, there is a certain period of time during which entry into the labor force increases more quickly than the dependent population. This leads to higher output per capita. Second, they found that for high birth rate countries, birth rate decreases usually promote investment. The opposite relation is true for low birth rate countries. Third, the authors find that there is a “capital dilution” effect of high fertility. Thus, if birth rates were to increase, the amount of capital per capita and income growth will decrease and vice versa.
Through many analyses and equation derivations, Brander and Dowrick are able to conclude that birth rate decreases precede income growth increases. They further hypothesize three methods in which this happens, all of which were mentioned above.
"The Role of Fertility and Population in Economic Growth", by James A. Brander and Steve Dowrick Journal of Population Economics, Vol. 7, 1994, pp. 1-25.