Wednesday, January 18, 2012

Economic benefits of a large growing population: what experts say

By Dr. Raul Nidoy

HSBC, the world's second-largest banking and financial services group and second-largest public company, predicted that the Philippines will be the 16th biggest economy by 2050, surpassing Australia, Netherlands, Saudi Arabia, Indonesia, Thailand and Malaysia. It means the Philippines will leapfrog 27 ranks!

The explanation of HSBC, among others, points to the Philippines' large growing population.

Why? In a nutshell, the experts say a large population means:

>a greater domestic market
>attracting investors and multinational companies
>stimulating investment in knowledge
>generating more new ideas which improve productivity
>market size stimulates innovative activity
>increasing learning-by-doing due to pressures of increased production volume
>more workers
>more young people energizing the economy
>increased consumption driving manufacturing and services
>increased national savings
>a big home market that is an attractive prize for successful new products
>greater economies of scale (less cost in production per unit with increase of volume)
>an absolutely larger number of outstanding, highly effective people

Gary Becker, Nobel Prize Winner:

In modern knowledge-based economies, on balance population growth helps rather than hurts income growth and general welfare.

Larger populations stimulate greater investments in knowledge that tend to raise per capita welfare.

RAND Corporation (associated with 30 Nobel Prize Winners)

Most economic analysis has examined the statistical correlation between population and economic growth and found little significant connection. Though countries with rapidly growing populations tend to have more slowly growing economies, this negative correlation typically disappears (or even reverses direction) once other factors such as country size, openness to trade,educational attainment of the population, and the quality of civil and political institutions are taken into account.

Michael Spence, Nobel Prize Winner:

One factor that relates to size is important. Large countries, even in the early stages, have a potential advantage in that if they are serious about growth, their domestic economies are prospectively large and of great interest to multinational corporations. This will attract the multinationals' attention, and cause them to make the up front investment in learning to operate in a new environment with a view to both the expandability of exports and, in the longer term, supplying the large domestic market.

Small countries do not offer these inducements. That makes it more difficult to get the attention of the multinationals and hence harder to open this important channel for knowledge transfer. (From his 2011 book: The Next Convergence: The Future of Economic Growth in a Multispeed World. 1st Edition. New York: Farrar, Strauss and Giroux, pages 124-125.)

Bernardo Villegas, Doctor of Economics, Harvard University in Benefits of Large and Young Population:

Lessons are being learned from the ongoing global economic crisis. One of them is that a large and young population can partly insulate a country from the ill effects of a global recession. It should not come as a surprise that in Southeast Asia, there are three countries that are still posting positive growth rates in Gross Domestic Product, i.e. Vietnam, Indonesia, and the Philippines (VIP). …

The VIP countries, like the so-called tiger economies such as Singapore, Taiwan, and South Korea, are also experiencing precipitous drops in their exports (declines of 30 percent or more). Their economies are still growing, however, because their businesses can still sell to their respective domestic markets. Indonesia, for example, has close to 250 million consumers. … Vietnam and the Philippines have each close to 90 million consumers. Their GDP is being fueled by private consumption, thanks to large and young populations.

The VIP countries also share a common feature: their populations are relatively young. Close to 70 percent of their populations are less than thirty years old. Those who are over 65 are less than 5 percent (in contrast with Japan, where those who are over 65 are nearing 20 percent of the entire population). Young populations tend to consume more. They also are magnets for foreign investors from the developed countries that are looking for lower labor costs. ..

Among the so-called emerging markets that are led by the BRIC (Brazil, Russia, India and China) countries, those that have the best of both worlds are those with large and young populations and are endowed with rich natural resources…

Julian Simon, Senior Fellow at Cato Institute and Professor of Business at University of Maryland, Is Population Growth A Drag to Economic Development?

In the very long run more people have a positive net effect. This is because the most important positive effects of additional people -- improvement of productivity through both the contribution of new ideas, and also the learning-by-doing consequent upon increased production volume -- happen in the long run, and are cumulative...

It may at first seem preposterous that greater population density might lead to better economic results. This is the equivalent of saying that if all Americans moved east of the Mississippi, we might not be the poorer for it. Upon reflection, this proposition is not as unlikely as it sounds....

Such a change would bring about major benefits in shortening transportation and communication distances, a factor which has been important in Japan's ability to closely coordinate its industrial operations in such a fashion as to reduce costs of inventory and transportation.

Additionally, greater population concentration forces social changes in the direction of a greater degree of organization, changes which may be costly in the short run but in the long run increase a society's ability to reach its economic and social objectives. If we were still living at the population density of, say, ten thousand years ago, we would have none of the vital complex social and economic apparatuses that are the backbone of our society.

Prof. Casey Mulligan, University of Chicago in the New York Times

The more people on earth, the greater the chance that one of them has an idea of how to improve alternative energies, or to mitigate the climate effects of carbon emissions. It takes only one person to have an idea that can benefit many.

Plus, the more people on earth, the larger are the markets for new innovations.

Thus, even if the brilliant innovators would be born regardless of population control, their incentives to devote effort toward finding new discoveries and bringing them to the marketplace depend on the size of that marketplace.

And it’s clear that incentives matter for innovative activity: That’s why we have a patent system that helps innovators obtain financial rewards for their inventions.

Not surprisingly, research has shown that market size stimulates innovative activity, as in the case of pharmaceutical research that is especially intense for conditions that have more victims.

Dr. Roberto de Vera and Dr. Victor Abola, University of Asia and the Pacific

Roberto de Vera: It is true that economic development is not only a matter of quantity nor a matter only of having warm bodies. However, a country has to have warm bodies to begin with.

De Vera opines that the problem of poverty, although a heavy burden, is easier to solve than the problem of not having enough people. He says controlling population growth poses the serious threat of population aging and dwindling number of human resources, which many advanced economies now face.

He says the projection that some more developed economies like Singapore will be overtaken by the Philippines by 2050 hinges on the fact that the former are now facing serious problems of population aging.

De Vera also disagrees with the notion that there are not enough resources to educate all school-aged children in the country. He says government resources, if efficiently monitored and allocated, should be able to accommodate the education needs of Filipino children belonging to households that cannot financially afford sending kids to school.Ongoing efforts of the government to improve governance and rising contributions from the private sector as far as investments are concerned should bear positive results over the long term.

Dr. Victor A. Abola: A large population is an advantage rather than a drag on economic growth based on two fronts—advancement of knowledge and economies of scale.

Advances in knowledge are faster in a large population because intelligence and genius is not confined to the rich. It is normally distributed, and, therefore, with a larger population you would have an absolutely larger number of outstanding people who do make a difference.

Economies of scale (which happens when cost of per-unit production declines as volume increases) can be more easily achieved with a large population. Countries with smaller population have to rely on the export markets just to achieve economies of scale, he explains.

Previous studies have concluded that 58 percent of economic growth can be traced to advancement in knowledge, while 17 percent is anchored on economies of scale.

Abola says existing resources of the Philippines, including human capital, will help the country become progressive decades from now.

The Economist by Buttonwood

Basically, economic growth comes from having more workers, making them more productive or a combination of the two. If a country has fewer workers, productivity has to do all the work, and even then real growth is likely to be slow.

The following nations are all set to see declines of more than 10%; Switzerland, the Netherlands, Austria, Hungary, Italy, Portugal, Poland, South Korea, Russia, Japan and Germany. In the last two cases, the decline is set to be a remarkable 20%.

The US is likely to show a rise of almost 10%; Britain a more modest increase. The top five growers are the Philippines, Egypt, Malaysia, Israel and india. Of course, very-rapidly growing population can be a problem, especially if you can't find jobs for young men. But it is better to be in the top half of the table - like Australia, New Zealand and Ireland - than the bottom.

These figures are quite remarkable - not since the Black Death can there have been such a fall in workers - and the implications must surely be very profound. One reason it will be so hard for Europe to grow its way out of the debt crisis is the impact of demography.

Marie Powell

Many economists contend that larger numbers of young people energize an economy by growing the productive labor pool, driving manufacturing and services through consumption and increasing the national savings rate.

Young people have incentives to save for purposes like home purchases, college tuition for children and retirement plans.


Is it coincidence that the most innovative major industrialized country, the U.S., also has the fastest growing population and the most young people? No coincidence at all, as it turns out.

Surprisingly, a nation with a large population may have an advantage when it comes to innovation and the adoption of new technologies.

Why is that? For one thing, innovation is risky. Most new products and new technologies fail. But a big home market offers a very attractive prize for success: Lots and lots of potential customers. And that tends to encourage innovation.

Bert Hofman, World Bank Chief Economist for East Asia and the Pacific
Aging is one of the "most important megatrends" in East Asia and the Pacific and the Philippines stands to benefit from it.

Hofman said the country’s young and well-educated work force would be able to attract more businesses to set up shop in the Philippines. This includes more business-process outsourcing (BPO) firms and even manufacturing firms in China that will decide to move to the Philippines, where wages are relatively low and the work force is young.“This is truly one of the most important megatrends in the region. And for the Philippines, it’s an opportunity. If the Philippines creates the business environment that would create jobs, they’re going to be a big winner of this trend because a lot of the rest of the region are actually aging quite rapidly,” Hofman said.


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A related article which tackles population control and poverty, and the role of contraceptives is Science Facts on Contraceptives

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