Research Korner: Economic Theory

Role of Population Size and Growth in Economic Performance

Role of Population Size and Growth in Economic Performance     Introduction The discipline of economics as we understand it today is a relatively recent development (Varian HR 1989). Economic theory provides an outlet for research in all areas of economics based on rigorous theoretical reasoning and on topics in mathematics that are supported by the analysis of economic problems (Varian HR 1989). Economic theory surveys for particular areas of research that clearly set forth the basic underlying concepts and ideas, the essential technical apparatuses, and the central open questions. The help of economic theory the economist have already a guide on how to manage and boost the economy. Modern economic thought emerged in the 17th and 18th centuries as the western world began its transformation from an agrarian to an industrial society (Varian HR 1989). In accordance to these theories, issues concerning economic growth and development become a hotly debated topic. Actually, the economic development and progress of most countries in world is most likely related to their agriculture but only few recognizes that modernization and population growth are part of it. From the statement of economy presented by Macfarlane, I (2002), it was shown that the 1930s depression, accompanied by social chaos in rural and mining areas that effectively forced the country into the import-replacing industrialization that became the basis for a post-war economic boom.  Different nations around the world experienced decline and success in the course of their history. Their success and decline in terms of their economic, political, and societal conditions have led many historians and economist to come up with theories and assumptions that would determine the chain of events. With this, we may say the population size and growth as well as technological development as part of modernization changes plays significant role in economic performance. This role could have both positive and negative impact to the economy.  Basically, the increase in population size could also mean increase of workforce that would help the economy to grow inevitably.  However, this increase in population in negative side would also hinder the nation or a certain economy to distribute its already scarce wealth.     Discussions             According to Krautkraemer JA (2005), the decline in population means less pressure on resource and it also means less labor for production in the economy but a developed economy will react differently from a developing country. Basically, most developed countries are on that stage of having more death than birth meaning their population is declining.  For example, Japan its economy is not at all declining despite the population decrease. In other words labor is being substituted because there is now intensive mechanization, modernization, automation and computerization of every production sector and this nullifies the fact that a decline in population will affect an economy in developed world. One of the benefits of modernization is it describes the ongoing global trend toward the freer flow of trade and investment across borders and the resulting integration of the international economy. Because it expands economic freedom and spurs competition, modernization raises the productivity and living standards of people in countries that open themselves to the global marketplace.  For less developed countries, the benefits of modernization are obvious. Modernization offers access to foreign capital, global export markets, and advanced technology while breaking the monopoly of inefficient and protected domestic producers. Faster growth, in turn, promotes poverty reduction, democratization, and higher labor and environmental standards.  Modernization has produced enormous benefits for very large numbers of people (Inglehart, 2005). One of the most important benefits of modernization is the major progress and growth of global trade. Through this, goods, services, labor, capital and technology are able to move freely across national borders. International trade expansion led to higher international capital flows, labor and technology. Universality in cultural, political, legal and institutional practices among neighboring countries was also made possible through this benefit. With international trade, countries are able to distribute their goods to a larger market. Aside from economic development, the ties shared by participating countries can also be a useful resource for less developed nations. This benefit was even more pronounced from 1980 to 1997 where volume of international trade had tripled. At the same rate, imports and exports have also grown. From 1990 to 1997, the volume of foreign direct investment has also doubled in volume (RAWOO, 2000). Changes in technology and communication have also supported this modernization effect as labor and business opportunities become more accessible. The economic benefit of modernization then resulted to higher standards of living among participating nations. As modernization enables open trade among foreign countries, media had also been enhanced through this concept; this in turn, resulted to the people’s increased accessibility to several forms of media including the radio, newspaper, telephones, televisions, computers via the internet. This access on the other hand was beneficial not only in making communication easier but also in increasing public awareness over several important issues like gender inequality, discrimination, democracy and human rights.  As business monopoly is gradually taken out by modernization, media monopoly is no longer observed as well. RAWOO (2000) stated that the increased access of people to communication, markets and information is among the important benefits of modernization as nations are able to optimize various resources and share the outcomes with others. Ultimately, this important benefit resulted to efficient allocations for the purposes of progress, poverty reduction and human development. National governments then improved though modernization as awareness led to active development.             However, we may say that economic growth is the expansion of productive capacity of an economy and it requires labor but quality labor (skilled and educated). It is very possible for a region to have a shrinking population but a growing economy so long the few are skilled. The other fact which is also very important to consider as far as economic growth is concerned is both capital widening and capital deepening in production.             Moreover, some of us may also state that economic growth depends on whether the economy makes a profit or not, and what proportion of the decline are revenue generating people. For example, when the birth rate goes down, less resources are used (schools, hospitals etc) as children, but then the problem of fewer tax payers when that generation starts working causes a decline. This is happening now as the baby-boomers of the 1950s reach retirement, we will have an ageing population, so fewer tax payers and more people drawing pensions will cause the certain economy big problems in a decade or so. With respect to the population issues, employment and unemployment concepts will come up in order to relate measures of economic growth and economic actions of the government of a certain country. For example, Australia initiated a bipartisan protection strategy till the early 1980s which allowed reasonably high wages, low unemployment and a diverse manufacturing sector while achieving reasonable import replacement. However, this strategy was abandoned in 1983-85 as the Labor government worked to bring Australia out of the era of protectionism and into a new era of open competition and manufacturing for global markets.  Basically, the development of the Australian economy over the past years has been excellent. Regardless of the crisis in Asia, Australia’s GDP has sustained to grow sturdily, with per capita income growth averaging just under 3 per cent a year since late 1991. There has also been stable growth in full-time service and even faster growth in the number of part-time jobs. The unemployment rate, while still higher than popular given this period of growth, had fallen to a near 10 year low of 6.4 per cent in August 2000 (Macfarlane, I 2002). As seen in this report, the theory of Keynesian seems to be true in which the emphasis is on the activist government policies to promote high employment, dominated economic policymaking. With regards to this theory, it clearly describes the participation of the government in which it plays a major role in managing the economy (Varian HR 1989). Government is important because they are the on who will control and finance the expenses in order to make the economy become progressive. For some business companies, the theory of monetarism seems to be apparent. In Monetarism theory it deals about the updates the Quantity Theory. In monetarism theory really concerned the numbers of products being produce for the reason that can immediately supply if ever the demand is high (Varian HR 1989). It emphasizes the critical role of monetary growth in determining inflation. From the evaluation presented by Macfarlane, I (2002), Rational Expectations Theory is not apparent since this theory provides a contemporary rationale for the pre-Keynesian tradition in which there is restrictions or limitations of government involvement in economy. It argues that the market’s ability to anticipate government policy actions limits their effectiveness (Varian HR 1989). Basically, these theories play an important role in order to make the economy become progressive because it provides concepts and ideas in analyzing the complicated situation and problems that deals with economic problems. The concepts and ideas being provided by the theories, it will serve as the guidance for the government on how to manage the economy with fewer expenses. With regards to population growth, it certainly creates significant impact to economic growth and progress. Most notably may be Japan as well as many developed Western countries. The U.S. however, has experienced population growth due primarily to immigration rather than births. In the case of Japan, population growth by births is rather stagnant, and there seems to be a high barrier for immigration. The fear is that the elderly population will overtake the working (which may already be the case), and Japan's version of social security will inevitably fail. Thus, the Japanese government is promoting the birth rate through incentives and the media. There are a few factors that actually allow the economy of a country to grow while the population decreases. People who did not previously contribute to the economy may do so, e.g. retirees, students, women. For example, during World War II, females entered into the workforce in the U.S. (which was unprecedented at the time), while the men were sent overseas to fight. The simple facts is that generally half the population (male v. female), were only subjected to the home life, now were contributing to the creation of goods and services. Obviously, this was to continue after the war and to the present. Since it is no longer the case that such a large part of the population is not working, we may assume that there are other methods to increase productivity. Technology will play a key role in countries that are unable to grow, or even sustain its population. Hence, we would imagine computers and machines to take the place of humans in the future.   Conclusion   Typically, there is a whole 'growth' component of the economy - housing construction and so forth, so that if there is no growth, then we have unemployment, and through the multiplier process, stagnation. Historically, part of growth has been the increase use of inputs such as labor, land, oil, forests and the selling off stocks. So, in this sense, population growth is necessary and play significant role to the economy. Thus, it is also necessary to pay for the old people to have young people around, so that you need to at least replace your population. In the US, there is a huge swell of baby boomers that did not save enough for, so there need lots of immigrants to help pay for them when they retire. But this is rather an exceptional case. If there is no population increase, then the ever increasing demand for construction and so on must be dealt with technological growth and modernization. As evidently discussed in this paper, Japan survived and continues to receive economic growth even though their population growth is too low and that is because they manage to have excellent modernization growth. But for most economies, they must have either population or technological growth with respect to the current composition of economic factors and outputs.   References:   Inglehart, R (2005), Modernization, Cultural Change, and Democracy: The Human Development Sequence. Cambridge University Press.   Krautkraemer JA (2005), Economics of Natural Resource Scarcity: The State of the Debate, Resources for the Future, Accessed: 14 January 2009, Available at: <http://www.rff.org/rff/Documents/RFF-DP-05-14.pdf>   Macfarlane, I (2002),The Australian Economy:Past, Present and Future, Reserve Bank of Australia Bulletin. Accessed: 14 January 2009, Available at: <http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_apr02/bu_0402_2.pdf>   RAWOO (2000), Coping with globalisation: the need for research concerning the local response to globalisation in developing countries, Rawoo, The Hague.   Varian HR (1989), What Use is Economic Theory? School of Information Management and Systems, University of California, Berkeley. Accessed: 14 January 2009 Available at: <http://people.ischool.berkeley.edu/~hal/Papers/theory.pdf>

Role of Population Size and Growth in Economic Performance

Role of Population Size and Growth in Economic Performance Introduction The discipline of economics as we understand it toda...