Population Growth and Economic Growth: Long-Run Evidence from Latin America.

• Author: Thornton, John
• Position: Statistical Data Included

Unit root tests, the Johansen maximal likelihood methodology, and Granger causality tests in the context of a one-step error correction model are used to examine the long-run relation between population and per capita GDP in seven Latin American countries over most of the 20th century. The results suggest that no long-run relation has existed and, hence, population growth neither causes per capita GDP growth nor is caused by it.

1. Introduction

   Population growth may affect economic performance if it affects the supply and demand for savings and the efficiency of capital (McNicoll 1984; Hammer 1986, 1987; Kelley 1988). The supply of household savings (usually the largest component of domestic savings) may be reduced by a high dependency ratio if, for a given level of output per worker, it causes consumption to rise and per capita savings to fall. The demand for savings may increase as population grows, since faster population growth absorbs investible resources, reducing capital per person. Thus, in countries with a growing labor force, the stock of capital must increase to maintain capital per worker and current productivity, otherwise productivity (and thus incomes) will stagnate or fall. Finally, the efficiency of capital may be hindered by rapid population growth if social and political pressure to employ young people leads to a large government sector, or to regulations designed to stop private-sector employers from reducing their workforce. On the other hand, several factors suggest that there may be no link between population growth and savings and investment. For example, in the early stages of development monetized savings may be produced by relatively few wealthy families with few children, so their savings may not be affected by the burden of their dependents. Also, poor families are unlikely to have financial savings that show up in the national accounts, but may save by accumulating other assets such as land or gold.

   Much of the empirical evidence on the relation between population growth and per capita income is from cross-section studies. For example, Easterlin (1967), Kuznets (1967), Simon (1992), and Thirlwall (1972) find a weak or insignificant relation; in contrast, Kelly and Schmidt (1994) find a negative and significant relation, at least for less developed countries. A recent time-series study by Dawson and Triffin (1998) finds no long-run relation between the variables in the case of India. In this note, I test for the existence of a long-run relation in Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela over the period 1900-1994 using cointegration and causality analyses. The results suggest that there is no long-run relation between the variables in any of the seven countries.

2. Data and Methodology

   Historical data for the levels of U.S. dollar real GDP per capita and population are from Maddison (1995). Data for Argentina, Brazil, Chile, and...