Population Pressures, Saving, and Investment in the Third World: Some Puzzles

Abstract

For over 25 years economists and population specialists have generally embraced the plausible notion that rapid rates of population growth exert a quantitatively significant adverse impact on the pace of economic growth through the effects of age dependency capital shallowing and investment diversion. However empirical research has not sustained these hypotheses individually or collectively. One general factor appears to account for this variance between theory and facts--the tendency to develop analyses with simplifying assumptions that are not then subjected to adequate empirical tests. At its most fundamental level economics is about making choices in the face of scarcity. In the literature relating population growth savings and investment and modeling of choices has been amazingly narrow--indeed almost a-economic. At the household level population pressures are usually modeled by engineering-like fixed-coefficient formulae. In contrast trade-offs between quantities or qualities of consumption are seldom admitted parents work force behavior is usually taken to be uninfluenced by family size and children are typically assumed to contribute nothing productively. Similarly at the government level population pressures are modeled to show population-sensitive expenditures taking priority and crowding out more productive spending. In reality governments respond with more flexibility than the models suggest and some of the population-sensitive expenditures may be growth-enhancing. More elaborate analyses reveal 2nd-order effects: economizing on scarce resources and an expansion in supply.