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An Econometric Analysis of the Economic Effects of Population Change
Cop'rig'hl © II-'.\C Ihll'lIllic \t()d(,:lIill~ and COlltrol of :\'
PLA1\: 1\ I:\G :\:\U DEClSI():\ \IOnu .s 11\ DE\TLOI'Ii'\(; COL' :\TRIES
AN ECONOMETRIC ANALYSIS OF THE ECONOMIC EFFECTS OF POPULATION CHANGE s. Departllll'"t of Biostatistin, L'lIh','rsity
of North
L. Tung Carolinll at ChlljJl'1 flill, ChajN'1 11111. xC' 2/51-1. ('SA
Abstract. An econometric model, estimated from time series data for Taiwan, is used to simulate the economic consequences of demographic change . It takes into account the interactions between demographic and economic effects. This study fails to find any significant effects of Taiwan's family planning program on fertility reduction beyond the secular trend. To increase income by expediting fertility reduction, means beyond family planning programs are needed. The simulation results suggest that in the short run, a slowgrowing population yields substantially higher income per capita than does a fast-growing population, though in the long run, the fast-growing population ~e~erates slightly better economic performance . Therefore, it may be benef~c~al for a developing country with a high birth rate to reduce fertil i ty in order to break out of the low-in come "trap" as soon as possib le. Keywords. Taiwan.
Econometric model; demographic model; birth control; simulation;
Recently, increased debate has focused on the impact of rapid population growth on economic activities. Some maintain that population growth reduces per capita income growth in less-developed countries (Coale and Hoover, 1958; Enke, 1960, 1966, 1971, 1974; Gillman, 1981; Council on Environmental Quality and the Department of State, 1980; Kantner, 1982; Preston, 1982; Sirageldin and Kantner, 1982; Timmer, 1982), whereas others argue that in the long run population growth has a positive effect on economic growth (Adelman and Robinson, 1978; Clark, 1967, 1978; Simon, 1976a, 1977, 1981a, 1981b, 1981c; Simon and Gobin, 1980). It is important that further research be done in this area as soon as possible in order to obtain a clearer picture for policy purposes. Otherwise, policy makers will be in doubt as to whether it is economically beneficial for a developing country to reduce fertility.
land in 1980). Within the 27 years from 1953 to 1980, the population in Taiwan more than doubled, but real national income per capita grew even faster--it more than quadrupled. An econometric model, estimated from time series data for Taiwan, is used to evaluate the impacts of demographic factors upon the economy. The model takes into account the interactions between demographic and economic effects. The simulation results indicate that in the short run, the stationary population produces significantly higher income per capi ta than rapid popula tion p. rmvth does, although in the long run, population grOlvth produces slightly higher income per capita. In terms of the present values of annual income per capita, the slow-growing population also shows considerably better economic performance. I.
The purpose of this study is to provide additional evidence for and against population growth in the developing countries. Taiwan provirles a propi tious case for the study for the following reasons: (1) the economic and demographic data of Taiwan are more reliable and readily available than those of most other less-developed C()lI~ tries: (2) in the past three decades, Taiwan has been undergoing one of the fastest population and economic growths in human history, while its population density has been among the highest in the world (about 500 persons per square kilometer and 2,000 persons per square kilometer of cultivated
THE ECONOMETRIC MODEL
The model I use is an extension and improvement of my earlier version (Tung, 1981). The model consists of an economic submodel and a population submodel that interact. Figure 1 is a schema of the model. A.
Economic Submodel
Gross domestic produce (Y) is made a CobbDouglas function of lab or (L) a nd c apital stock (K): Y
379
ea Kb L c.
(1)
S.L. Tung
380
Government revenues (GR) are made a function of gross domestic product:
Demographic 1 Econ~lc
variables 1 variables I I
GR = F 8 (Y).
( 8)
The supply of output available to the economy comprises gross domestic product plus imports (H) . In equilibrium, the supply equals the sum of the demands consisting of private consumption of food (CF) and nonfood (CN), government consumption (GC), investment (I), and exports (X). Therefore, the equilibrium condition is: I
Y - (CF + CN) - GC - (X - M).
=
(9)
Capital stock is calculated by adding net investment to the beginning-of-year capital stock: Fig.
1.
Interactions between Demographic and Economic Variables
K The private consumption of food is made a function of private disposable income (YD) , number of equivalent adult consumers (PE), and lagged private consumption of food:
K_l + I-D.
=
( 10)
Private disposable income is obtained by subtractin~ government revenues and depreciation from gross domestic product: YD
=
Y - D - GR.
( ll)
(2)
B. The private consumption of nonfood is a function of private disposable income and lagged private consumption of nonfood:
Population Submodel
Income per equivalent adult consumer is a determinant of age- and sex-specific fertility rates. (F~), labor-force participation rates (LP~) and survival rates (S~):
The government consumption expenditures are made to depend on total population (P) and the gross domestic product:
F~
Lpi GC
=
F4 (P, Y).
( 4)
Depreciation is a function of the beginningof-year capital stock: (5)
Imports are made to depend on lagged imports and the gross domestic product: (6)
It is expected that exports depend on world economy, relative prices, exchange rates, the number of equivalent adult consumers, and trade policies of the countries concerned. As a result, a long-run forecast of exports is impossible because of the difficulties in forecasting the world economy, relative prices, exchange rates, and governments' policies related to international trade. For economic and political reasons, the Taiwan government has tried to promote exports so that they equal, or slightly exceed, imports. Thus, for our long-run simulation, we explain exports by relating them to imports. Thus, the function proposed is:
x
(7)
r
=
Fk (Y/PE),
( 12-18)
F
(Y/PE),
( 19-40)
Fh (Y /PE) ,
(41-76)
r
where k, r, and h represent code numbers for age groups, and i stands for sexes. Only income per equivalent adult consumer is used as an independent variable in those equations because it is a reasonable composite index for socioeconomic development and because separating the effects of income and other socioeconomic-development variables is not possible or sensible (Simon, 1974, 1976b). Government actions that can be taken to reduce fertility include (1) restricting the number of children a couple can have, (2) using socioeconomic and financial policies to reduce reproductive motivation, (3) limiting the number of children eligible for fringe benefits per family of government employees, and (4) implementing family planning programs. The first two actions have not been taken in Taiwan. It seems inappropriate to take the first (involuntary) action. If economic and financial policies are ever taken to reduce fertility, they will influence fertility mostly through increase in per capita income.
Economic Effects of Population Change The Taiwan Governme nt has taken the t:1ird and fourth actions for nearly two decades. Nevertheless, they d o not seem t o have had much appreciable effect on reducing fertility. Incorporating indices of socioeconomic development and the family planning program, a multiple regression analysis suggests that the independent effects of the two actions are statistically insignificant. It implies that the rapid fertility reduction in Taiwan in the past three decades was mainly due to the rapid socioeconomic development, which reduced family size desires. The number of equivalent adult consumers is a weighted sum of the population in each age-sex group (p!), with the weights (wt) varying according to the consumption dilferentials by age and sex: l
PE
2
18
l:
l:
i=l
j=l
wi j
pi j
where i represents sexes and age groups.
(77)
stands for
The number of equivalent adult consumers and the age- and sex-specific fertility, survival, and labor- force participation rates should account for the effects of changing age and sex composition . The component method of population projec tions is used to project the population, using the data of sex ratio at birth (s) , age-specific fertility rates, age - and sexspecific survival rates, and base population: pf.q+5 • _1_ 5 0 1 + s
sf
s_
sm
ptD,q+5 _ _
1 + s
5 0
B
B
45
r ,,"15
45 ,,"15
,Spfx .q....2 5pix ,q+5
)
SFRx'
pf.q + pf .q+5 (5. 2 5 • )
sF'Rx'
x - 0, S. 10,
75,
(76)
(79)
(BO-Ul)
(112-113)
where f and m stand for female and male, respectively, q is a time index for quinquennial years (q is omitted where unnecessary) and s represents the sex ratio at birth, which is assumed to be 105 males per 100 females . Total population is the sum of the population in each age-sex group: 2
P
18
l:
l:
i=l
j=l
pi j
(114)
lThe weights are based on Mueller's (1976) estimates of medium- consumption profile, The weights will change with socioeconomic development, but the adjus t ments show no major differences in the simulations.
38 1
The total labor force is calculated by ap plying the age- and sex-specific labor-force participation rates to the population in the corresponding age - sex group:
L
2 l:
i=l
11 l: r=l
(115)
Because the data for labor-force participation rates are unavailable prior to 1965, the equations of production and labor-force participation rates are estimated by using yearly data for the sample period 1965-79; other equations are estimated on the basis of the period 1953-79. L To avoid the effect of variations in prices, we use the economic data at constant prices (1976 = 100). The economic variables are all in billions of 1976 N.T. dollars except gross domestic product per capita and gross domestic product per consumer equivalent, which are in thousands of 1976 N.T. dollars. Labor force, population, and the number of equivalent adult consumers are in the millions. Because the depreciation equation contains no unlagged endogenous variables, it is sufficient to estimate the equation by using ordinary least squares to obtain the best linear unbiased estimator. But all the other behavioral equations are estimated using two-stage least squares (2SLS). The fit in each equation is generally very close, with most RL greater than 0.85. The signs of the coefficients are all as ex pected. The coefficients for age-specific survival rates are all significant at the five percent level, except males aged 80- 84 and females aged 1-4, which are significant at the 10 percent level. The coefficients for labor-force participation rates are all significant at the five percent level, except females aged 65 and over, whose participation in the labor force may be substan tially affected by noneconomic factors. Since the labor-force participation rate for that group is only around 1.6 percent, it is not likely to make a considerable difference in the simulation . In the equations of labor-force participation rates, the negative coefficients for young ages indicate that as income rises, couples can afford to have their children stay in school longer; the negative coefficients for older ages imply that as income increases, the elderly are likely to have more savings with which to retire earlier.
2The data for this study are from the fol lowing sources: Republic of China Council of Economic Planning and Development (1981); Republic of China Council of Economic Planning and Development and Ministry of the Interior (1976); Republic of China Directo rate-General of Budget, Ac counting and Statistics (1978-l98la, 1981b, 1981c, 1981d); Republic of China Ministry of the Interior (1961-80); Taiwan Provincial Labor Force Survey and Research Institute (1965 - 77) .
S.L. Tung
382
Since the model is nonrec ursive and nonlinear , it is solved by the Gauss- Seidel method (Evans, 1969) to avoid errors resul~ ing from lineari zation . It is assumed that the age-sp ecific fertili ty rates stop de clining after fertili ty reaches replace ment level. The age - and sex-sp ecific surviv al and labor-f orce partici pation rates are constra ined within the curren t highes t levels among nations (Intern ationa l Labour Office , 1980; United Nation s, 1979). APPLICATION OF THE MODEL
11.
The model is applied to simula te the effects of popula tion change on econom ic activi ties for the period 1965-2 080. The variou s simula tions are done by moving the consta nt terms of the age-sp ecific fertility equatio ns. Even when the consta nt terms are moved, fertili ty rates are still endogenous and affecte d by gross domest ic product per equiva lent adult consum er. Tables 1 and 2 show the simula tion results of popula tion size, labor force, and gross domest ic produc t per capita . As expecte d, for 15 years, labor force will not be affected by differe nt fertili ty assump tions. In the long run, the popula tion size and labor force will be greatly affecte d by fertili ty change s . Under the very low fer tility trend assump tions, they would grow only about 50 percen t in a century ; but under the very high fertili ty trend assump tions, they would more than double . TABLE 1
?opula tion and Labor Force under Differ ent Fertil ity Trends (In Million s)
Fertil ity Trend (change in consta nt term
Popula tion 2080 1980
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
19.6 19 .0 18.4 17.8 17 . 3 16.7 16.3 16.0 15.8 15 . 7 15.6
the long run, the lower fertili ty popula tions produce a smalle r gross domest ic product per capita than the normal fertili ty popula tion because the negativ e effects of a slower growing labor force domina te the positiv e effects of a faster growing capita l format ion. TABLE 2
Fertil ity Trend (change in consta nt term)
1980
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
66 71 76 81 86 91 96 101 104 106 106
Labor Force 2080 1980 7.3 7.3 7.4 7.4 7.4 7.4 7.5 7.5 7.5 7.5 7.5
20.6 18.1 16.2 14.7 l3 .5 12.6 11. 9 11.4 11.1 10.9 10.9
In the short run, the low fertili ty trend popula tions produce consid erably larger gross domest ic produc t (GDP) per capita than the normal fertili ty trend popula tion becaus e (1) for the first 15 years the lower fertili ty does not affect popula tion size in the workin g ages of 15 and over; and (2) the positiv e effects of larger capita l format ion, derived from reduced consum ption as a result of the fertili ty reduct ion, domina te the negativ e effects of the more slowly growing labor force. Howeve r, in
Year 2020
2080
581 609 632 652 667 679 688 695 700 703 704
2236 2249 2259 2267 2273 2276 2279 2282 2285 2287 2287
In terms of presen t value, a slower - growing popula tion also produc es better econom ic perform ance. Table 3 shows the sums of the presen t values of the annual GDP per capita under differe nt fertili ty trend assump tions, and Table 4 reports the ratios of these values . Regard less of the rate of discou nt, the slow-gr owing popula tions genera te higher sums of the presen t values of the annual GDP per capita than do the fast-gr owing popula tions. TABLE 3
45.5 40 .0 35 . 8 32 . 4 29 . 8 27.8 26.3 25 . 3 24.6 24.3 24 . 2
Gross Domest ic Produc t per Capita under Differ ent Fertil ity Trends (In Thousa nds of 1976 N.T. Dollar s)
The Sums of the Presen t Values of the Annual GDP per Capita under Differe nt Fertil ity Trends (In Thousa nds of 1976 N.T. Dollar s)
Fertil ity Trend (change in consta nt term)
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
0%
Rate of Discou nt 10% 5%
19,372 .5 19,807 .5 20,181 . 7 20,504 . 5 20,784 . 4 21,019 .7 21,210 .5 21,363 . 5 21,476 . 2 21,547 .9 21 ,559.1
681.1 716.5 749.3 779.6 807.2 831. 6 852.2 869.0 881. 5 889 . 5 890.7
150.4 158.5 166.4 174.1 181.5 188.3 194.4 199.6 203.6 206.2 206.6
In simula ting the econom ic effects of popu lation change , it is unreal istic to assume that the socioec onomic structu re remains consta nt for a century . Still, the conclu sion from the simula tion for any shorte r
Economic Effects of Population Change period is th e same: slow-gr owing populations produce better economic performance than do fast-growing populations. TABLE 4
The Ratios of the Present Values of the Annual GDP per Capita under Different Fertility Trends (Base: N.F.T. ; 100) Unit:
Fertility Trend (change in constant term)
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50% Ill .
%
383
very high GDP per capita in the long run. Therefore, it may not be of primary importance that the slow-growing populations eventually produce slightly smaller GDP per capita than do the fast - growing populations; it may be of much greater importance that they produce much higher GDP ' s in the short run, from an economic point of view. For a developing country to break out of poverty such rapid growths may be necessary . REFERENCES
Rate of Discount 0%
5%
10%
92.2 94.2 96.0 97 .5 98.9 100 .0 100.9 101.6 102.2 102.5 102 . 6
81.9 86.2 90.1 93.7 97.1 100.0 102.5 104.5 106.0 107.0 107.1
79.9 84.2 88.4 92.5 96.4 100.0 103.2 106 .0 108.1 109.5 109.7
SUMMARY AND CONCLUSIONS
Adelman, I., and S. Robinson (1978). Migration, Demographic Change and Income Distribution in a Model of a Developing Country. In J.L. Simon (Ed.), Research in Population Economics: An Annual Compilation of Research, Vol. 1. Greenwich, Connecticut: JAI Press, pp . 1-26. Clark, C. (1967). Population Growth and Land Use. New York: St. Martin's Pre ~ s. Clark, C. (1978). Population Growth and Productivity. In J.L. Simon (Ed.), Research in Population Economics: An Annual Comilation of Research, Vol . 1 . Greenwich, Connecticut: JAI Press, pp. 143-154.
Most developed countries have been providing assistance to developing countries in reducing fertility because of the belief that reducing population growth will reduce consumption need and save more for investment. However, the theory has been challenged recently by some researchers, leaving policy makers without a policy direction regarding population. Therefore, further research in this area is urgently needed.
Coale, A.J., and E.M. Hoover (1958). Population Growth and Economic Development Low Income Countries. Princeton: Princeton University Press.
The purpose of this study has been to examine the economic consequences of population change. To do this, we have constructed an econometric model which presents a set of theoretically valid equations and takes into account the interrelationships between economic development and demographic change. The model is applied to Taiwan, which has been experiencing one of the most rapid population and economic growths ever recorded.
Enke, S. (1960) . The Gains to India from Population Control: Some Money Measures and Incentive Schemes. Review of Economics and Statistics, Vol. 42, pp . 175-181.
The simulation indicates that in the short run, slow- growing populations produce substantially higher GDP per capita than do fast - growing populations, although in the long run, the fast-growing populations generate slightly better economic performance. In terms of present values of the annual GDP per capita, slow- growing populations also produce better economic performance . This study yields one important policy implication. Because lower fertility has immediate economic advantages, it may be beneficial for a developing country with a high birth rate to reduce fertility in order to break out of the low-income "trap" as soon as possible. The high and low fertility trend populations all generate
Council on Environmental Quality and the Department of State (1980). The Global 2000 Report to the President: Entering the Twenty-First Century. U.S. Government Printing Office.
Enke, S. (1966). The Economic Aspects of Slowing Population Growth. Economic Journal, Vol. 76, pp. 44 - 56. Enke, S. (1971). The Economic Consequences of Rapid Population Growth. Economic Journal, Vol. 81, pp. 800-811 . Enke, S . (1974). Reducing Fertility to Accelerate Development. Economic Journal, Vol. 84, pp. 349-366. Evans, M.K. (1969). Non -Linear Econometric Models. In T.H. Naylor (Ed.), The Design of Computer Simulation Experiments. Durham, NC: Duke University Press. Gillman, K. (1981). Julian Simon ' s Cracked Crystal Ball. The Public Interest, Vol. 65, pp. 71-80. Kantner, J.F. (1982) . Population, Poli c y and Politi c al Atavism. Pr e sidential ad dress presented at th e Annual I'ieeting of the Population Association o f Ameri ca,
S.L. Tung
384 San Diego, April 29-May 1, 1982. International Labour Office (1980). Year Book of Labour Statistics, Geneva.
Mueller, E. (1976). The Economic Value of Children in Peasant Agriculture. In R.G. Ridker (Ed.), Population and Development: The Search for Selective Intervention. Baltimore: Johns Hopkins University Press. Preston, S.H. (1982). Review Symposium on J.L. Simon, The Ultimate Resource. Population and Development Review, Vol. 8, pp. 174-177. Republic of China Council of Economic Planning and Development (1981). Taiwan Statistical Data Book. Taipei. Republic of China Council of Economic Planning and Development and Ministry of the Interior (1976). Adjustment of Household Registration Statistics in Taiwan Area (in Chinese). Taipei. Republic of China Directorate-General of Budget, Accounting and Statistics (19781981a). Monthly Bulletin of Labor Statistics, Republic of China. Taipei.
Population Growth. University Press.
Princeton:
Prince ton
Simon, J.L. (198la). Global Confusion, 1980: A Hard Look at the Global 2000 Report. The Public Interest, Vol. 62, pp. 3-20. Simon, J.L. (198lb). The Ultimate Resource. Princeton: Princeton University Press. Simon, J.L. (198lc). False Bad News Is Truly Bad News. The Public Interest, Vol. 65, pp. 80-89. Simon, J.L. and R. Gobin (1980). The Relationship between Population and Economic Growth in LDC's. In J.L. Simon and J. DaVanzo (Ed.), Research in Population Economics: A Research Annual, Vol. 2. Greenwich, Connecticut: JAI Press, pp. 215-234 . Sirageldin, I. and J. F. Kantner (1982). Review Symposium on J . L. Simon, The Ultimate Resource. Population and Development Review, Vol. 8, pp. 169-173. Taiwan Provincial Labor Force Survey and Research Institute (1965-77). Quarterly Report on the Labor Force Survey in Taiwan, Republic of China. Taipei.
Republic of China Directorate-General of Budget, Accounting and Statistics (198lb). Briefing on the Forecasting of Aggregate Supply and Demand of the Republic of China. Taipei.
Tirnrner, C.P. (1982). Review Symposium on J.L. Simon, The Ultimate Resource. Population and Development Review, Vol. 8, pp. 163-168.
Republic of China Directorate-General of Budget, Accounting and Statistics (198lc). National Income of the Republic of China. Taipei.
Tung, S. (1981). An Econometric Simulation of the Econometric Effects of Fertility Control. ERC Monograph, No. 1. Department of Commerce, Agana, Guam.
Republic of China Directorate-General of Budget, Accounting and Statistics (198ld). Statistical Yearbook of the Republic of China. Taipei.
United Nations (1979). Demographic Yearbook: Historical Supplement, New York.
ACKNOWLEDGEIIENTS Republic of China Ministry of the Interior (1961-81). Taiwan-Fukien Demographic Fact Book. Taipei. Simon, J.L. (1974). The Effects of Income on Fertility. Carolina Population Center, Monograph No. 19, University of North Carolina at Chapel Hill. Simon, J.L. (1967a). Population Growth May Be Good for LDCs in the Long Run: A Richer Simulation Model. Economic Development and Cultural Change, Vol. 24, pp. 309-337. Simon, J .L. (1976b). Income, Health, and Their Distribution as Policy Tools in Fertility Control. In R.G. Ridker (Ed.), Population and Development: The Search for Selective Interventions. Baltimore: Johns Hopkins University Press. Simon, J.L. (1977).
The Economics of
I am grateful to Professors Burnham O. Campbell, Moheb A. Ghali, Andrew Mason, Thomas H. Naylor, Julian L. Simon, C. M. Suchindran, Boone Turchi, Yeong-Her Yeh, and an anonymous referee for helpful comments on an earlier version, and the Carolina Population Center for logistic support. Financial support was received from the National Institute of Child Health and Human Development. The views expressed are those of the author.
PLA1\: 1\ I:\G :\:\U DEClSI():\ \IOnu .s 11\ DE\TLOI'Ii'\(; COL' :\TRIES
AN ECONOMETRIC ANALYSIS OF THE ECONOMIC EFFECTS OF POPULATION CHANGE s. Departllll'"t of Biostatistin, L'lIh','rsity
of North
L. Tung Carolinll at ChlljJl'1 flill, ChajN'1 11111. xC' 2/51-1. ('SA
Abstract. An econometric model, estimated from time series data for Taiwan, is used to simulate the economic consequences of demographic change . It takes into account the interactions between demographic and economic effects. This study fails to find any significant effects of Taiwan's family planning program on fertility reduction beyond the secular trend. To increase income by expediting fertility reduction, means beyond family planning programs are needed. The simulation results suggest that in the short run, a slowgrowing population yields substantially higher income per capita than does a fast-growing population, though in the long run, the fast-growing population ~e~erates slightly better economic performance . Therefore, it may be benef~c~al for a developing country with a high birth rate to reduce fertil i ty in order to break out of the low-in come "trap" as soon as possib le. Keywords. Taiwan.
Econometric model; demographic model; birth control; simulation;
Recently, increased debate has focused on the impact of rapid population growth on economic activities. Some maintain that population growth reduces per capita income growth in less-developed countries (Coale and Hoover, 1958; Enke, 1960, 1966, 1971, 1974; Gillman, 1981; Council on Environmental Quality and the Department of State, 1980; Kantner, 1982; Preston, 1982; Sirageldin and Kantner, 1982; Timmer, 1982), whereas others argue that in the long run population growth has a positive effect on economic growth (Adelman and Robinson, 1978; Clark, 1967, 1978; Simon, 1976a, 1977, 1981a, 1981b, 1981c; Simon and Gobin, 1980). It is important that further research be done in this area as soon as possible in order to obtain a clearer picture for policy purposes. Otherwise, policy makers will be in doubt as to whether it is economically beneficial for a developing country to reduce fertility.
land in 1980). Within the 27 years from 1953 to 1980, the population in Taiwan more than doubled, but real national income per capita grew even faster--it more than quadrupled. An econometric model, estimated from time series data for Taiwan, is used to evaluate the impacts of demographic factors upon the economy. The model takes into account the interactions between demographic and economic effects. The simulation results indicate that in the short run, the stationary population produces significantly higher income per capi ta than rapid popula tion p. rmvth does, although in the long run, population grOlvth produces slightly higher income per capita. In terms of the present values of annual income per capita, the slow-growing population also shows considerably better economic performance. I.
The purpose of this study is to provide additional evidence for and against population growth in the developing countries. Taiwan provirles a propi tious case for the study for the following reasons: (1) the economic and demographic data of Taiwan are more reliable and readily available than those of most other less-developed C()lI~ tries: (2) in the past three decades, Taiwan has been undergoing one of the fastest population and economic growths in human history, while its population density has been among the highest in the world (about 500 persons per square kilometer and 2,000 persons per square kilometer of cultivated
THE ECONOMETRIC MODEL
The model I use is an extension and improvement of my earlier version (Tung, 1981). The model consists of an economic submodel and a population submodel that interact. Figure 1 is a schema of the model. A.
Economic Submodel
Gross domestic produce (Y) is made a CobbDouglas function of lab or (L) a nd c apital stock (K): Y
379
ea Kb L c.
(1)
S.L. Tung
380
Government revenues (GR) are made a function of gross domestic product:
Demographic 1 Econ~lc
variables 1 variables I I
GR = F 8 (Y).
( 8)
The supply of output available to the economy comprises gross domestic product plus imports (H) . In equilibrium, the supply equals the sum of the demands consisting of private consumption of food (CF) and nonfood (CN), government consumption (GC), investment (I), and exports (X). Therefore, the equilibrium condition is: I
Y - (CF + CN) - GC - (X - M).
=
(9)
Capital stock is calculated by adding net investment to the beginning-of-year capital stock: Fig.
1.
Interactions between Demographic and Economic Variables
K The private consumption of food is made a function of private disposable income (YD) , number of equivalent adult consumers (PE), and lagged private consumption of food:
K_l + I-D.
=
( 10)
Private disposable income is obtained by subtractin~ government revenues and depreciation from gross domestic product: YD
=
Y - D - GR.
( ll)
(2)
B. The private consumption of nonfood is a function of private disposable income and lagged private consumption of nonfood:
Population Submodel
Income per equivalent adult consumer is a determinant of age- and sex-specific fertility rates. (F~), labor-force participation rates (LP~) and survival rates (S~):
The government consumption expenditures are made to depend on total population (P) and the gross domestic product:
F~
Lpi GC
=
F4 (P, Y).
( 4)
Depreciation is a function of the beginningof-year capital stock: (5)
Imports are made to depend on lagged imports and the gross domestic product: (6)
It is expected that exports depend on world economy, relative prices, exchange rates, the number of equivalent adult consumers, and trade policies of the countries concerned. As a result, a long-run forecast of exports is impossible because of the difficulties in forecasting the world economy, relative prices, exchange rates, and governments' policies related to international trade. For economic and political reasons, the Taiwan government has tried to promote exports so that they equal, or slightly exceed, imports. Thus, for our long-run simulation, we explain exports by relating them to imports. Thus, the function proposed is:
x
(7)
r
=
Fk (Y/PE),
( 12-18)
F
(Y/PE),
( 19-40)
Fh (Y /PE) ,
(41-76)
r
where k, r, and h represent code numbers for age groups, and i stands for sexes. Only income per equivalent adult consumer is used as an independent variable in those equations because it is a reasonable composite index for socioeconomic development and because separating the effects of income and other socioeconomic-development variables is not possible or sensible (Simon, 1974, 1976b). Government actions that can be taken to reduce fertility include (1) restricting the number of children a couple can have, (2) using socioeconomic and financial policies to reduce reproductive motivation, (3) limiting the number of children eligible for fringe benefits per family of government employees, and (4) implementing family planning programs. The first two actions have not been taken in Taiwan. It seems inappropriate to take the first (involuntary) action. If economic and financial policies are ever taken to reduce fertility, they will influence fertility mostly through increase in per capita income.
Economic Effects of Population Change The Taiwan Governme nt has taken the t:1ird and fourth actions for nearly two decades. Nevertheless, they d o not seem t o have had much appreciable effect on reducing fertility. Incorporating indices of socioeconomic development and the family planning program, a multiple regression analysis suggests that the independent effects of the two actions are statistically insignificant. It implies that the rapid fertility reduction in Taiwan in the past three decades was mainly due to the rapid socioeconomic development, which reduced family size desires. The number of equivalent adult consumers is a weighted sum of the population in each age-sex group (p!), with the weights (wt) varying according to the consumption dilferentials by age and sex: l
PE
2
18
l:
l:
i=l
j=l
wi j
pi j
where i represents sexes and age groups.
(77)
stands for
The number of equivalent adult consumers and the age- and sex-specific fertility, survival, and labor- force participation rates should account for the effects of changing age and sex composition . The component method of population projec tions is used to project the population, using the data of sex ratio at birth (s) , age-specific fertility rates, age - and sexspecific survival rates, and base population: pf.q+5 • _1_ 5 0 1 + s
sf
s_
sm
ptD,q+5 _ _
1 + s
5 0
B
B
45
r ,,"15
45 ,,"15
,Spfx .q....2 5pix ,q+5
)
SFRx'
pf.q + pf .q+5 (5. 2 5 • )
sF'Rx'
x - 0, S. 10,
75,
(76)
(79)
(BO-Ul)
(112-113)
where f and m stand for female and male, respectively, q is a time index for quinquennial years (q is omitted where unnecessary) and s represents the sex ratio at birth, which is assumed to be 105 males per 100 females . Total population is the sum of the population in each age-sex group: 2
P
18
l:
l:
i=l
j=l
pi j
(114)
lThe weights are based on Mueller's (1976) estimates of medium- consumption profile, The weights will change with socioeconomic development, but the adjus t ments show no major differences in the simulations.
38 1
The total labor force is calculated by ap plying the age- and sex-specific labor-force participation rates to the population in the corresponding age - sex group:
L
2 l:
i=l
11 l: r=l
(115)
Because the data for labor-force participation rates are unavailable prior to 1965, the equations of production and labor-force participation rates are estimated by using yearly data for the sample period 1965-79; other equations are estimated on the basis of the period 1953-79. L To avoid the effect of variations in prices, we use the economic data at constant prices (1976 = 100). The economic variables are all in billions of 1976 N.T. dollars except gross domestic product per capita and gross domestic product per consumer equivalent, which are in thousands of 1976 N.T. dollars. Labor force, population, and the number of equivalent adult consumers are in the millions. Because the depreciation equation contains no unlagged endogenous variables, it is sufficient to estimate the equation by using ordinary least squares to obtain the best linear unbiased estimator. But all the other behavioral equations are estimated using two-stage least squares (2SLS). The fit in each equation is generally very close, with most RL greater than 0.85. The signs of the coefficients are all as ex pected. The coefficients for age-specific survival rates are all significant at the five percent level, except males aged 80- 84 and females aged 1-4, which are significant at the 10 percent level. The coefficients for labor-force participation rates are all significant at the five percent level, except females aged 65 and over, whose participation in the labor force may be substan tially affected by noneconomic factors. Since the labor-force participation rate for that group is only around 1.6 percent, it is not likely to make a considerable difference in the simulation . In the equations of labor-force participation rates, the negative coefficients for young ages indicate that as income rises, couples can afford to have their children stay in school longer; the negative coefficients for older ages imply that as income increases, the elderly are likely to have more savings with which to retire earlier.
2The data for this study are from the fol lowing sources: Republic of China Council of Economic Planning and Development (1981); Republic of China Council of Economic Planning and Development and Ministry of the Interior (1976); Republic of China Directo rate-General of Budget, Ac counting and Statistics (1978-l98la, 1981b, 1981c, 1981d); Republic of China Ministry of the Interior (1961-80); Taiwan Provincial Labor Force Survey and Research Institute (1965 - 77) .
S.L. Tung
382
Since the model is nonrec ursive and nonlinear , it is solved by the Gauss- Seidel method (Evans, 1969) to avoid errors resul~ ing from lineari zation . It is assumed that the age-sp ecific fertili ty rates stop de clining after fertili ty reaches replace ment level. The age - and sex-sp ecific surviv al and labor-f orce partici pation rates are constra ined within the curren t highes t levels among nations (Intern ationa l Labour Office , 1980; United Nation s, 1979). APPLICATION OF THE MODEL
11.
The model is applied to simula te the effects of popula tion change on econom ic activi ties for the period 1965-2 080. The variou s simula tions are done by moving the consta nt terms of the age-sp ecific fertility equatio ns. Even when the consta nt terms are moved, fertili ty rates are still endogenous and affecte d by gross domest ic product per equiva lent adult consum er. Tables 1 and 2 show the simula tion results of popula tion size, labor force, and gross domest ic produc t per capita . As expecte d, for 15 years, labor force will not be affected by differe nt fertili ty assump tions. In the long run, the popula tion size and labor force will be greatly affecte d by fertili ty change s . Under the very low fer tility trend assump tions, they would grow only about 50 percen t in a century ; but under the very high fertili ty trend assump tions, they would more than double . TABLE 1
?opula tion and Labor Force under Differ ent Fertil ity Trends (In Million s)
Fertil ity Trend (change in consta nt term
Popula tion 2080 1980
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
19.6 19 .0 18.4 17.8 17 . 3 16.7 16.3 16.0 15.8 15 . 7 15.6
the long run, the lower fertili ty popula tions produce a smalle r gross domest ic product per capita than the normal fertili ty popula tion because the negativ e effects of a slower growing labor force domina te the positiv e effects of a faster growing capita l format ion. TABLE 2
Fertil ity Trend (change in consta nt term)
1980
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
66 71 76 81 86 91 96 101 104 106 106
Labor Force 2080 1980 7.3 7.3 7.4 7.4 7.4 7.4 7.5 7.5 7.5 7.5 7.5
20.6 18.1 16.2 14.7 l3 .5 12.6 11. 9 11.4 11.1 10.9 10.9
In the short run, the low fertili ty trend popula tions produce consid erably larger gross domest ic produc t (GDP) per capita than the normal fertili ty trend popula tion becaus e (1) for the first 15 years the lower fertili ty does not affect popula tion size in the workin g ages of 15 and over; and (2) the positiv e effects of larger capita l format ion, derived from reduced consum ption as a result of the fertili ty reduct ion, domina te the negativ e effects of the more slowly growing labor force. Howeve r, in
Year 2020
2080
581 609 632 652 667 679 688 695 700 703 704
2236 2249 2259 2267 2273 2276 2279 2282 2285 2287 2287
In terms of presen t value, a slower - growing popula tion also produc es better econom ic perform ance. Table 3 shows the sums of the presen t values of the annual GDP per capita under differe nt fertili ty trend assump tions, and Table 4 reports the ratios of these values . Regard less of the rate of discou nt, the slow-gr owing popula tions genera te higher sums of the presen t values of the annual GDP per capita than do the fast-gr owing popula tions. TABLE 3
45.5 40 .0 35 . 8 32 . 4 29 . 8 27.8 26.3 25 . 3 24.6 24.3 24 . 2
Gross Domest ic Produc t per Capita under Differ ent Fertil ity Trends (In Thousa nds of 1976 N.T. Dollar s)
The Sums of the Presen t Values of the Annual GDP per Capita under Differe nt Fertil ity Trends (In Thousa nds of 1976 N.T. Dollar s)
Fertil ity Trend (change in consta nt term)
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50%
0%
Rate of Discou nt 10% 5%
19,372 .5 19,807 .5 20,181 . 7 20,504 . 5 20,784 . 4 21,019 .7 21,210 .5 21,363 . 5 21,476 . 2 21,547 .9 21 ,559.1
681.1 716.5 749.3 779.6 807.2 831. 6 852.2 869.0 881. 5 889 . 5 890.7
150.4 158.5 166.4 174.1 181.5 188.3 194.4 199.6 203.6 206.2 206.6
In simula ting the econom ic effects of popu lation change , it is unreal istic to assume that the socioec onomic structu re remains consta nt for a century . Still, the conclu sion from the simula tion for any shorte r
Economic Effects of Population Change period is th e same: slow-gr owing populations produce better economic performance than do fast-growing populations. TABLE 4
The Ratios of the Present Values of the Annual GDP per Capita under Different Fertility Trends (Base: N.F.T. ; 100) Unit:
Fertility Trend (change in constant term)
Up 50% Up 40% Up 30% Up 20% Up 10% Normal Down 10% Down 20% Down 30% Down 40% Down 50% Ill .
%
383
very high GDP per capita in the long run. Therefore, it may not be of primary importance that the slow-growing populations eventually produce slightly smaller GDP per capita than do the fast - growing populations; it may be of much greater importance that they produce much higher GDP ' s in the short run, from an economic point of view. For a developing country to break out of poverty such rapid growths may be necessary . REFERENCES
Rate of Discount 0%
5%
10%
92.2 94.2 96.0 97 .5 98.9 100 .0 100.9 101.6 102.2 102.5 102 . 6
81.9 86.2 90.1 93.7 97.1 100.0 102.5 104.5 106.0 107.0 107.1
79.9 84.2 88.4 92.5 96.4 100.0 103.2 106 .0 108.1 109.5 109.7
SUMMARY AND CONCLUSIONS
Adelman, I., and S. Robinson (1978). Migration, Demographic Change and Income Distribution in a Model of a Developing Country. In J.L. Simon (Ed.), Research in Population Economics: An Annual Compilation of Research, Vol. 1. Greenwich, Connecticut: JAI Press, pp . 1-26. Clark, C. (1967). Population Growth and Land Use. New York: St. Martin's Pre ~ s. Clark, C. (1978). Population Growth and Productivity. In J.L. Simon (Ed.), Research in Population Economics: An Annual Comilation of Research, Vol . 1 . Greenwich, Connecticut: JAI Press, pp. 143-154.
Most developed countries have been providing assistance to developing countries in reducing fertility because of the belief that reducing population growth will reduce consumption need and save more for investment. However, the theory has been challenged recently by some researchers, leaving policy makers without a policy direction regarding population. Therefore, further research in this area is urgently needed.
Coale, A.J., and E.M. Hoover (1958). Population Growth and Economic Development Low Income Countries. Princeton: Princeton University Press.
The purpose of this study has been to examine the economic consequences of population change. To do this, we have constructed an econometric model which presents a set of theoretically valid equations and takes into account the interrelationships between economic development and demographic change. The model is applied to Taiwan, which has been experiencing one of the most rapid population and economic growths ever recorded.
Enke, S. (1960) . The Gains to India from Population Control: Some Money Measures and Incentive Schemes. Review of Economics and Statistics, Vol. 42, pp . 175-181.
The simulation indicates that in the short run, slow- growing populations produce substantially higher GDP per capita than do fast - growing populations, although in the long run, the fast-growing populations generate slightly better economic performance. In terms of present values of the annual GDP per capita, slow- growing populations also produce better economic performance . This study yields one important policy implication. Because lower fertility has immediate economic advantages, it may be beneficial for a developing country with a high birth rate to reduce fertility in order to break out of the low-income "trap" as soon as possible. The high and low fertility trend populations all generate
Council on Environmental Quality and the Department of State (1980). The Global 2000 Report to the President: Entering the Twenty-First Century. U.S. Government Printing Office.
Enke, S. (1966). The Economic Aspects of Slowing Population Growth. Economic Journal, Vol. 76, pp. 44 - 56. Enke, S. (1971). The Economic Consequences of Rapid Population Growth. Economic Journal, Vol. 81, pp. 800-811 . Enke, S . (1974). Reducing Fertility to Accelerate Development. Economic Journal, Vol. 84, pp. 349-366. Evans, M.K. (1969). Non -Linear Econometric Models. In T.H. Naylor (Ed.), The Design of Computer Simulation Experiments. Durham, NC: Duke University Press. Gillman, K. (1981). Julian Simon ' s Cracked Crystal Ball. The Public Interest, Vol. 65, pp. 71-80. Kantner, J.F. (1982) . Population, Poli c y and Politi c al Atavism. Pr e sidential ad dress presented at th e Annual I'ieeting of the Population Association o f Ameri ca,
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Simon, J.L. (198la). Global Confusion, 1980: A Hard Look at the Global 2000 Report. The Public Interest, Vol. 62, pp. 3-20. Simon, J.L. (198lb). The Ultimate Resource. Princeton: Princeton University Press. Simon, J.L. (198lc). False Bad News Is Truly Bad News. The Public Interest, Vol. 65, pp. 80-89. Simon, J.L. and R. Gobin (1980). The Relationship between Population and Economic Growth in LDC's. In J.L. Simon and J. DaVanzo (Ed.), Research in Population Economics: A Research Annual, Vol. 2. Greenwich, Connecticut: JAI Press, pp. 215-234 . Sirageldin, I. and J. F. Kantner (1982). Review Symposium on J . L. Simon, The Ultimate Resource. Population and Development Review, Vol. 8, pp. 169-173. Taiwan Provincial Labor Force Survey and Research Institute (1965-77). Quarterly Report on the Labor Force Survey in Taiwan, Republic of China. Taipei.
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Tung, S. (1981). An Econometric Simulation of the Econometric Effects of Fertility Control. ERC Monograph, No. 1. Department of Commerce, Agana, Guam.
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ACKNOWLEDGEIIENTS Republic of China Ministry of the Interior (1961-81). Taiwan-Fukien Demographic Fact Book. Taipei. Simon, J.L. (1974). The Effects of Income on Fertility. Carolina Population Center, Monograph No. 19, University of North Carolina at Chapel Hill. Simon, J.L. (1967a). Population Growth May Be Good for LDCs in the Long Run: A Richer Simulation Model. Economic Development and Cultural Change, Vol. 24, pp. 309-337. Simon, J .L. (1976b). Income, Health, and Their Distribution as Policy Tools in Fertility Control. In R.G. Ridker (Ed.), Population and Development: The Search for Selective Interventions. Baltimore: Johns Hopkins University Press. Simon, J.L. (1977).
The Economics of
I am grateful to Professors Burnham O. Campbell, Moheb A. Ghali, Andrew Mason, Thomas H. Naylor, Julian L. Simon, C. M. Suchindran, Boone Turchi, Yeong-Her Yeh, and an anonymous referee for helpful comments on an earlier version, and the Carolina Population Center for logistic support. Financial support was received from the National Institute of Child Health and Human Development. The views expressed are those of the author.