Population density growth : economic effects and mitigation in LDCs

Abstract

Purpose: The purpose of this study is to provide a theoretical and empirical analysis of the economic effects of population density growth in LDCs*. Cross-country variations in the population density and per capita income relationship are changed by the intermediary effects of institutional and structural changes over time. The discussion brings together disparate viewpoints from the economic sub-fields of population, development, and microeconomic theory, to substantially modify the prevailing views of the causal relations involved. The conclusion is a new explanation for the presence or absence of economic development in less developed countries*. Background: For some time there has been concern that rapid population growth since the early 20th Century would inhibit economic development* in less developed countries. Theoretical debates ensued over both the economic effects of rapid population growth and the explanation for lack of economic development in LDCs. Hypothesis: Rapid population growth has an inhibiting effect upon attempts to raise the levels of per capita incomes (or output in the production function context) in LDCs. This occurs through the effects of rising population densities* upon institutional effectiveness*. Appropriate institutional* and structural* change can "mitigate"* or lessen the negative economic effects of rapid population growth. [* see Glossary--List of Definitions] Empirical Testing: (Data: World Bank, FAO, IMF) Testing of the "mitigation hypothesis" is done in three steps. First, the sign and significance of the cross-country income/population relationship is determined from a production function derivation. Second, an aggregate cross-country production function is fitted and analyzed for efficiency and input substitution characteristics. It is then used to generate a Residual*, for which the explanatory values of structural and institutional change variables are tested. Third, an interaction test for the mitigation of population growth effects over time across countries is done, testing the Residual first, and then variables disaggregated from it. Contributions and Conclusion: This study advances the theoretical and empirical discussion of population growth effects upon national incomes (per capita) for LDCs. Additionally, it empirically tests the importance of the contributions of institutional and structural change to economic growth. The empirical results of the study show that variation in per capita income levels and growth rates, both across countries and over time, is explained by the effects of economic structural/institutional characteristics on the national per capita income/population relationship. Across LDCs, population density growth in the 20th Century has retarded economic development. Over time, in those countries where economic structures and institutions have been changed, the growth limitations of population density growth influences have been lessened, or "mitigated", and economic growth has occurred.