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What Is the Relationship between Population and Economic Growth?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 21 November 2016
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Population and economic growth seems to have an obvious connection at first; without consumers, it may be difficult for an economy to grow. A deeper review, however, creates questions regarding the benefit of large populations for short and long-term economic growth. For example, economic theories on short-term population and economic growth may signal lower growth. Long-run population growth can, however, improve a nation’s economy under most conditions. As with many economic studies, theories, hypotheses, and arguments will no doubt continue to undergo scrutiny and debate.

In the short term, population growth occurs in one of two ways: babies being born to current individuals in the population or new citizens entering a country. Population and economic growth in the first scenario may not be as strong as the latter. For example, when a couple is expecting a baby, they will most likely save money up to the birth date. This removes money from the market as the couple places money in the bank. Payments made to a hospital or other group for the birth event may also not register very much on the economic scale.

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When new individuals enter an economy, there is typically a bump in short-run economic growth. This is natural as adding more consumers to any given market should increase consumption, which tends to increase economic growth. A different theory here, however, occurs when individuals are only in an economy for a short time period. Any income they make will go home to families or into a savings account. In short, the individual is only interested in earning money for a purpose other than establishing him- or herself in the new economy.

Long-run growth tends to always show a benefit from babies being born. As the child grows, parents are most likely to purchase goods or services to aid in the child’s development. The added consumption for these goods and services will grow the economy in the long run. Additionally, the child will usually become a tax-paying citizen later in life. This adds taxes to government coffers and, again, grows the economy from taxes, consumption, and potential investments, creating a direct link between population and economic growth.

Regressive population growth almost always hurts an economy. It is ironic that an economy can stall in the short run due to population growth and also population decline. The purpose for a market economy is to find ways to encourage growth that both improves from the birth of babies and withstands fluctuations in overall population. In some ways, the market will naturally adjust to these changes. Other times, a mixed economy may need governmental adjustments to monetary and fiscal policy.

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bear78
Post 3

I think that people giving birth would add more to the economy than it would take back. Yes, people do need to save money when they have children, for their education at least. But parents still need to spend a lot of money for children's needs.

I supposed the easiest way to increase production and consumption though would be to take immigrants. Although many immigrants save money too, they are paying taxes, unlike a baby who doesn't for a long while.

SteamLouis
Post 2

@ZipLine-- Those are disadvantages of population growth but there are advantages too. Although more people means more consumers, it also means more workers who can contribute to production in the country. You can't have production without workers. This is the main advantage.

For each country, there is probably a soft spot-- a population growth rate or number that is ideal. One which has few disadvantages and many advantages.

We know that in the US for example, the decrease in population growth after the baby boomers will put a strain on tax payers. Baby boomers will retire but there will be less people in the workforce to cover their social security through taxes. This is why governments have to study population growth rates and their impacts on economic growth. It's an immensely important factor for the economy.

ZipLine
Post 1

So in conclusion, population growth is both good and bad for the economy.

I always assumed that it was a bad thing because more people will mean that resources have to be distributed among more people and they will be more scarce and expensive as a result. Some overpopulated countries are trying to reduce their population growth through family planning policies for this reason, like China.

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