Abstract
This chapter begins with an overview of what new institutional economists have to say about the role of institutions in development, followed by economic historians’ views on the origins of economic growth. Finally, insights of new economic geography are presented. In the appendix to this chapter, projections of the world’s population are presented, not only because, historically, population issues played an important explanatory role in economic growth, but also future economic growth will be greatly influenced by the question whether the world’s population may further grow, stabilise, or shrink.
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Notes
- 1.
In From Keynes to Piketty (2016), I included a summary of Karl Polanyi’s classic The Great Transformation (1944). Polanyi (1886–1964) was an anthropological economist. He developed the Substantivist school of thought. Source: De Haan, P. (2016) From Keynes to Piketty; The Century that Shook up Economics. London: Palgrave Macmillan, 164–172.
- 2.
Aghion , P., Hewitt, P. (2005) Growth with Quality-Improving Innovations: An integrated Framework. In Aghion, P., Durlauf, S. (Eds) The Handbook of Economic Growth. Amsterdam: Elsevier, Vol. I, Part A, 67–110.
- 3.
Also referred to as the ‘Schumpeterian’ growth paradigm. The incorporation of this paradigm into the model is helpful in understanding: ‘(i) why liberalization policies (in particular an increase in product market competition) should affect productivity growth differently in sectors or countries at different stages of technological development…. and (ii) why the organizations or institutions that maximize growth, or that are actually chosen by societies, also vary with the distance to the frontier.’, Ibid., 84. This frontier term means that the extent of productivity growth would depend on a country’s distance to the world technology frontier: the closer a country is to this frontier, the higher is the effect on its rate of productivity growth.
- 4.
De Janvry A., Murgai, R., Sadoulet, E. Rural Development and Rural Poverty. Paper prepared for Handbook of Agricultural Economics, June 1999.
- 5.
Aghion, P., Durlauf, S. Eds. (2014) The Handbook of Economic Growth; Vols. 2A and 2B. Amsterdam: Elsevier.
- 6.
In 2011, Kahneman wrote a bestseller entitled Thinking, Fast and Slow. New York: Farrar, Straus and Giroux. On page 269 Kahneman explains how he got involved in behavioural economics: ‘One day in the early 1970s, Amos handed me a mimeographed essay by a Swiss economist named Bruno Frey, which discussed the psychological assumptions of economic theory…Bruno Frey barely recalls writing the piece, but I can still recite its first sentence: ‘The agent of economic theory is rational, selfish, and his tastes do not change.’ I was astonished. My economist colleagues worked in the building next door, but I had not appreciated the profound difference between our intellectual worlds. To a psychologist, it is self-evident that people are neither fully rational nor completely selfish, and that their tastes are anything but stable…. Here was an opportunity for an interesting conversation across the boundaries of the disciplines. I did not anticipate that my career would be defined by that conversation.’ On page 374, Kahneman observes about the rational agent model: ‘Theories can survive for a long time after conclusive evidence falsifies them, and the rational agent model certainly survived the evidence we have seen, and much other evidence as well.’
In 1992, Richard Tahler published The Winner’s Curse: Paradoxes and Anomalies of Economic Life. Princeton: Princeton University Press.
- 7.
Banerjee , A., Duflo, E. (2011) Poor Economics; a Radical Rethinking of the Way to Fight Global Poverty. New York: Public Affairs. William Easterly is less enthusiastic about RCTs. He observes that: ‘RCTs are infeasible for many of the big questions in development, like the economy-wide effects of good institutions or good macroeconomic policies.’ He concludes that ‘embracing RCTs has led development researchers to lower their ambitions.’ Source: Poor Economics, 236. By 1979, trials to find out what type of approach or assistance works for the poor were already undertaken by the Bangladesh Rehabilitation Committee (BRAC ). I became involved in supporting BRAC way back in 1979, when I started to work for NOVIB, a Dutch funding organisation. I was amazed to discover that at the time BRAC already had a research and evaluation department to, indeed, find out which approach worked and which one not. In sum, BRAC was way ahead in designing, testing, and delivering development assistance programmes aimed at improving the livelihood of Bangladesh’s poor.
- 8.
Ibid., 15. Originally developed in the medical sciences, RCT attempts to clarify whether (development) interventions work and how they can be made more effective. To explain why interventions work, one needs theory.
- 9.
Critics of this technique argue that the causal effects that instrumental strategies identify, are uninteresting because they often give answers to narrow questions. But enthusiasts of this technique argue that accurate answers to narrower questions are more useful than unreliable answers to wider questions. This reminds me of Keynes’s quip about rigorous statistics. He observed that that it was better to be roughly right than precisely wrong.
- 10.
Maddison , A. (1995) Monitoring the World Economy 1880–1992. Paris: OECD, 33, 50.
- 11.
Smith’s contemporary, Irish philosopher and politician Edmund Burke (1729–1797) saw institutions as the embodiment of collective wisdom and the bulwark of civilisation, standing between decency and anarchy.
- 12.
Smith, A. (1937) The Wealth of Nations. New York: Modern Library, 538–539.
- 13.
Before the onset of new institutional economics, there was the old institutional economics school. The eccentric institutionalist Thorstein Veblen (1857–1929) was a representative of old institutional economics. This school of thought maintained that economic systems evolved as a result of adjustments to existing institutions, provoked by technological change.
- 14.
Dell, M. The Persistent Effects of Peru’s Mining Mita. Econometrics, Vol. 78, No. 6 (November, 2010), 1863–1903.
- 15.
Ibid., 1899.
- 16.
Acemoglu, D., Johnson, S., Robinson, J. (2001) The Colonial Origins of Comparative Development: An Empirical Investigation. In American Economic Review, 91, 1369–1401.
- 17.
In 1970, around 45% of America’s national income was devoted to transaction costs, such as banking, insurance, finance, and costs of lawyers, accountants. Source: Wallis, J., North, D. (1986) Measuring the Transaction Sector in the American Economy 1870–1970. In Engerman, S., Gallman R. (eds) Long-Term Factors in American Economic Growth. Chicago: University of Chicago Press. As noted, multi-sectoral neoclassical models include sectors for transport, banking, insurance, mediation, and the like.
- 18.
Rural Development and Rural Poverty, 16.
- 19.
McCloskey, D. (2010) Bourgeois Dignity; Why Economics Can’t Explain the Modern World. Chicago: Chicago University Press.
- 20.
Ibid., 315.
- 21.
North, D. (1990) Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
- 22.
North, D. et al. (2007) Limited Access Orders in the Developing World. A New Approach to the Problems of Development. World Bank Working Paper 4359. Washington: World Bank.
- 23.
The repeal of the Corn Laws in England is a telling example in this realm. David Ricardo campaigned for the repeal of the Corn Laws, in which he, and others with him, was successful in 1846 when these laws were indeed repealed. Industrialists benefitted from them to the detriment of the landed gentry.
- 24.
Acemoglu, D., Robinson, J. (2012) Why Nations Fail: The Origins of Power, Prosperity and Poverty. New York: Crown Publishers.
- 25.
Ibid., 74–75.
- 26.
Ibid., 341.
- 27.
Rodrik, D., Subramanian, A., Trebbi, E. (2004) Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development. In Journal of Economic Growth, 9(2): 131–165.
- 28.
Sachs, J. Institutions Matter but Not for Everything; The Role of geography and resource endowments in development shouldn’t be underestimated. In Finance & Development, June 2003.
- 29.
Ibid., 39.
- 30.
Ibid., 41.
- 31.
Rodrik, D., Subramanian, A. (2008) The Primacy of Institutions and what This Does and Does Not Mean. In Secondi, G. (ed) The Development Economics Reader. London: Routledge.
- 32.
Jones, C., Romer, P. The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital. In American Economic Journal: Macroeconomics 2010, 2:1, 228. The authors argue on page 242: ‘Institutions are themselves ideas—inventions that shape the allocation of resources, and the search for better institutions is unending.’
- 33.
Keefer , P., Knack, S. Why Don’t Poor Countries Catch Up? A Cross-National Test of an Institutional Explanation. In Economic Enquiry, Vol. XXXXV, July 1997, 590–602.
- 34.
In their 1995 article Institutions and Economic Development which was published in Economic and Politics, 7(3), Keefer and Knack analysed the impact of property rights on economic growth across counties over the period 1974–1989. They apply composite indices of contract enforceability and expropriation risk. They find that there was a strong positive effect of property rights on economic growth.
- 35.
Glaeser, E., La Porta, R., Lopez-de-Salinas, F., Shleifer, A. (2004) Do Institutions Cause Growth? In Journal of Economic Growth, 271–303.
- 36.
Source: CIA Factbook.
- 37.
Ibid., 3–4.
- 38.
Rodrik, D. (2007) One Economics, Many Recipes; Globalization, Institutions and economic Growth. Princeton: Princeton University Press, 85.
- 39.
Ibid., 88.
- 40.
New York Times columnist Thomas Friedman, for example, noted the following in one of his columns: ‘One-party non-democracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the twenty-first century.’
- 41.
In addition, Rodrik observes: ‘Longstanding democracies such as India, Costa Rica, Malta, and Mauritius have experienced significantly less volatility than countries like Syria, Chile, or Iran.’ Source: One Economics, Many Recipes, 172–173.
- 42.
Ibid., 166.
- 43.
Barro, R. (2008) Democracy and Growth. In Secondi, G. (Ed.) The Development Economics Reader. London: Routledge.
- 44.
Acemoglu, D., Naidu, S., Restrepo, P., Robinson, J. (1 May 2015) Democracy Does Cause Growth. Can be downloaded via www.economist.com/democracy15.
- 45.
Hausmann, R., Pritchett, L., Rodrik, D. Growth Accelerations. Cambridge: NBER Working Paper Series 10566, June 2004.
- 46.
The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital, 238.
- 47.
Free Exchange, The Economist, 14 April 2018, 66.
- 48.
Williamson, J. (1991) Inequality, Poverty and History. Cambridge: Basil Blackwell, 2–3.
- 49.
McCloskey , D. (2010) Bourgeois Dignity; Why Economics Can’t Explain the Modern World. Chicago: Chicago University Press, xii.
- 50.
McCloskey defined bourgeoisie in a wide sense: ‘as the hiring or owning of professional or educated class’, 3. Ideas take up a prominent position in contemporary growth theories. Jones and Romer observe that, apart from institutions, population and human capital, ideas are now at the centre of growth theory. The authors continue by explaining that: ‘Ideas introduce scale effects. They also change the feasible and optimal economic institutions. The institutional implications have attracted more attention, but the scale effects are more important for understanding the big sweep of human history.’ Source: The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital, 226–227.
- 51.
Bourgeois Dignity, 7.
- 52.
Nelson , R., Winter, S. (1982) An Evolutionary Theory of Economic Change. Cambridge: The Belknap Press.
- 53.
One also finds an emphasis on successful economic agents in Allen, R. (2009) The British Industrial Revolution in Global Perspective. Cambridge: Cambridge University Press. Allen writes on page 14: ‘Culture possibly became more secular and more concerned with economic success. People could read and calculate. They chased after new products and worked to get the money to buy them. …While the eighteenth century was not the same as the twenty-first, modern attitudes and attributes were ascendant. Many had economic roots, and they furthered the growth of the economy.’ And on page 261 Allen observes: ‘The expansion of literacy occurred in the middle ranks of society—shopkeepers, tradesmen, artisans and proto-industrial workers—and many inventors came from this group.’
- 54.
Mokyr, J. (2017) A Culture of Growth; the Origins of the Modern Economy. Princeton: Princeton University Press, 23.
- 55.
Landes , D. (1998) The Wealth and Poverty of Nations: Why Some are so Rich and Others are so Poor. New York: W. W. Norton.
- 56.
Ibid., 516. On page 178 Landes observed: ‘Weber’s argument, as I see it, is that in that place and time (northern Europe, sixteenth to eighteenth centuries), religion encouraged the appearance in numbers of a personality type that had been exceptional and adventitious before; and that this type created a new economy (a new mode of production) that we know as (industrial ) capitalism.’
- 57.
Galor, O. (2005) From Stagnation to Growth: Unified Growth Theory. In Aghion, P., Durlauf, S. (Eds.) The Handbook of Economic Growth. Vol. 1, Part A. Amsterdam: Elsevier, 172–293.
Mokyr, J. (2005) Long-term Economic Growth and the History of Technology. In Aghion, P., Durlauf, S. (Eds) The Handbook of Economic Growth. Vol. 1, Part B. Amsterdam: Elsevier, 1113–1180.
- 58.
The author argues that unless the factors that promoted the transition of the currently developed economies into a state of sustained economic growth could be identified, and their implications would be modified to account for the differences in the growth structure of less developed economies, any attempt to explain the obstacles faced by less developed countries to reach a stage of sustained economic growth would be futile.
- 59.
Britain’s early industrialisation occurred without direct state intervention and developed successfully within a laissez-faire framework.
- 60.
Education may initially have been inspired by non-industrial reasons. England initiated a sequence of reforms in its education system since the 1830s and literacy rates gradually increased. Later on, in light of the industrial competition from other countries, such as France and Germany, British capitalists started to recognise the importance of technical education for the provision of skilled workers. However, the pure laissez-faire policy failed in developing a proper educational system, and capitalists demanded government intervention in the provision of education. Source: From Stagnation to Growth, 207.
- 61.
UK’s proportion of foreign trade to national income had swollen to 51.5% in the period 1909–1913.
- 62.
From Stagnation to Growth, 219.
- 63.
The theory is translated into a mathematical model presented in pp. 239–252.
- 64.
Galor, O., Mountford, A. (2003) Trading Population for Productivity. Providence: Brown University.
- 65.
From Stagnation to Growth, 284.
- 66.
Mokyr, J. (2017) A Culture of Growth. Princeton: Princeton University Press, 23.
- 67.
Long-term Economic Growth and the History of Technology, 1126.
- 68.
Lin , J. (2012) Demystifying the Chinese Economy. Cambridge: Cambridge University Press, 30–53.
- 69.
Ibid., 1135.
- 70.
Long-term Economic Growth and the History of Technology, 1142–1143. For example, Felix Meritis in Amsterdam, and Athenea high schools throughout Holland taught mathematics, astronomy, and physics.
- 71.
Another example is food canning and the evolution of bacteriology. The canning of food led to a prolonged scientific debate about what caused food to spoil. Pasteur ended the debate in the early 1860s.
- 72.
Abraham Lincoln (1809–1865) once said that what the patent system did was to add the fuel of interest to the fire of genius.
- 73.
Surely, there was opposition to new techniques, like the Luddites and protests against steam engines and mechanical sawmills. And there were riots such as the Captain Swing riots of 1830–1832. They slowed down the adoption of technology altogether. Riots were just one of the manifestations against technological progress. Mass labour protests constituted others.
- 74.
Mokyr’s A Culture of Growth, which covers the period 1500–1700, is about the ‘seeds’ that were planted during these two centuries. The author concludes: ‘To see the true importance of the European Enlightenment in the economic development that followed it, recall that it involved two highly innovative and complementary ideas: the concept that knowledge and the understanding of nature can and should be used to advance the material conditions of humanity, and the belief that power and government are there not to serve the rich and powerful but society at large. The combination of these two and the triumph in the market for ideas created a massive synergy that led to the economic sea changes we observe, from industrialization and the growth of physical and human capital to the discovery and mastery of natural forces and resources that were still beyond imagining in 1750.’ Source: A Culture of Growth, 341.
- 75.
Long-term Economic Growth and the History of Technology, 1173.
- 76.
Diamond, J. (1998) Guns, Germs and Steel; A short History of Everybody for the last 13,000 Years. London: Vintage.
- 77.
Gallup, J., Sachs, J., Mellinger, A. (1998) Geography and Economic Development. In Pleskovic, B., Stiglitz, J. (Eds) Annual World Bank Conference on Development Economics 1998. Washington: World Bank.
- 78.
Thirlwall, A., Pacheco-López, P. (2017) Economics of Development. Tenth Edition. London: Palgrave Macmillan, 300.
- 79.
‘Given these findings, it is hardly surprising that Africa has some of the poorest and most stagnant economies in the world. Geography is stacked against it.’ Source: Economics of Development, 300.
- 80.
Krugman, P. (1991) Increasing Returns and Economic Geography. In The Journal of Political Economy, Volume 99, Issue 3.
- 81.
Ibid., 485.
- 82.
Johann Heinrich von Thünen (1783–1850) developed his agricultural location theory, based upon an analysis of his own agricultural estates in Mecklenburg, Germany. Von Thünen concluded that the intensity of production of a particular crop declines with the distance to the market. Every farmer wants to be as close as possible to the market. The location of crops or live stock is determined by: (i) the market price; (ii) transport costs; and (iii) its yield per hectare. A concentric circles production pattern ensues around the market centre. Spectacular developments in transportation, allowing perishable products to be transported at long distances in a short period of time, meant that von Thünen’s theory is no longer applicable as originally conceived.
- 83.
This is a nice example of circular causation; a term coined by Gunnar Myrdal.
- 84.
Krugman, P. (1991) Increasing Returns and Economic Geography. In The Journal of Political Economy, Volume 99, Issue 3, 487.
- 85.
Perhaps to Krugman’s own surprise, the framework as applied proved to be, in his own words: ‘remarkably powerful in its ability to yield simple intuition-building treatments of seemingly intractable issues.’, Ibid., 487. Krugman concluded: ‘The model does illustrate… how tools drawn from industrial organization theory can help to formalize and sharpen the insights of a much neglected field. Thus I hope that this paper will be a stimulus to a revival of research into regional economics and economic geography.’ Ibid., 498.
- 86.
Krugman , P., Venables, A. Globalization and the Inequality of Nations. In The Quarterly Journal of Economics, Vol. CX, Issue 4, November 1995, 857–880.
- 87.
Wages in the core country will have risen as a result of increasing demand for labour in the manufacturing sector and a smaller proportion of manufactures have to be imported, reducing the consumer price index.
- 88.
The analysis could be extended, according to the authors, through getting more geography in it; i.e., the integration of a multi-region setting. Secondly, the model now excludes capital mobility; in fact, it includes no capital. So it would make sense to add capital movements. And, finally, the model should be tested with the help of real numbers.
- 89.
World Development Report 2009 Reshaping Economic Geography. Washington: World Bank.
- 90.
The report explains in great detail what institutions encompass. The term is used to categorise policies that are not explicitly designed with spatial considerations, but that have effects and outcomes that may vary across locations. These include national policies such as the income tax system, intergovernmental fiscal relations, and governance of land and housing markets, as well as education, health care, basic water and sanitation.
- 91.
The World Development Report 2009 ‘reshapes economic geography’: geographical reflections. Journal compilation ©Royal Geographical Society (with the Institute of British Geographers), 2009. The group consisted of Jonathan Rigg, Anthony Bebbington, Katherine Gough, Deborah Bryceson, Jytte Agergaard, Niels Fold and Cecilia Tacoli.
- 92.
Regarding embeddedness, while some institutions may be spatially blind (as proposed by the report), all are culturally embedded and culturally consequential.
- 93.
ADB (2007) Key Indicators 2007: Inequality in Asia. Manila: Asian Development Bank.
- 94.
The World Development Report 2009 ‘reshapes economic geography’: geographical reflections, 134.
- 95.
Maddison, A. (1995) Monitoring the World Economy 1820–1992. Paris: OECD, 50.
- 96.
Hicks, J. (1979) Causality in Economics. Oxford: Blackwell, xi.
- 97.
Bricker, D., Ibbitson, J. (2019) Empty Planet; The Shock of Global Population Decline. London: Robinson.
- 98.
The Economist, 2 February, 2019, 50.
- 99.
The authors argue that the drop in birth rates is also caused by the increasing rate of urbanisation: ‘It removes the need for young brawn to work the farm and makes children, instead, an economic liability, and it empowers women, who invariably choose to have fewer children once they have control over their own bodies. Those two factors became entrenched in the developed world in the nineteenth and twentieth centuries. But now these forces are at work in developing societies as well.’ Source: Empty Planet, 29.
- 100.
Rosling, H., Rosling, O. and Rosling Rönnlund, A. (2018) Factfulness; Ten Reasons We’re Wrong About the World-and Why Things are Better Than You think. London, Sceptre 3–5.
- 101.
The Economist, 50.
- 102.
Factfulness, 84–85.
- 103.
The Economist, 52.
- 104.
Economics of Development, 310.
- 105.
South Korea’s economy was boosted by the doubling of its population from 20 million in 1950 to 40 million in 1985. However, this did not happen in the Philippines, and most Latin American countries that also registered rapid population growth but sluggish economic growth at the time.
- 106.
The Growth Report; Strategies for Sustained Growth and Development. Washington: World Bank (2008), 11.
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Appendix: Population Issues
Appendix: Population Issues
Since the end of WWII, the world’s population increased spectacularly to around 7.6 billion. Two-thirds live in developing countries. Demographic experts at the UN estimated that by the end of this century the world’s population might reach between 9.6 billion and 13.2 billion. Somewhere in between, the UN projects that by 2100, the world’s population would be around 11.2 billion.
Contrary to the UN projections, Darrell Bricker and John Ibbitson conclude in Empty Planet that the world population may reach around 8 billion, after which it will reverse.Footnote 97 They argue that the UN’s projection is far too high, as it underestimates how fast fertility will decline. It is, however, fair to note that the United Nations Population Division did not only present the 10 to 13 billion projection; it also presented other, in their view less likely, scenario’s. In the so-called low variant scenario, women produce half a baby less than initially predicted. In this scenario, the planet’s population would peak at 8.5 billion around 2050, and would then start to decline rapidly. Indeed, so rapidly that by the end of this century the world’s entire population would be down to around 7 billion.
In June 2019, the UN revised its above-mentioned 10 to 13 billion projection downwards. The UN now estimates that the world will contain a little over 9.7 billion people in 2050, and just under 10.9 billion at the turn of the century.
Fertility’s replacement rate is 2.1, at which the population remains stable. Nearly all high-income countries have sub-replacement fertility rates—the average is 1.7. Only in poor countries fertility is still high enough to fuel rapid population growth. In sub-Saharan Africa it is 4.8; in heavily-indebted poor countries it is even 4.9. Hence pre-industrial fertility rates persist only in the poorest parts of the poorest countries.Footnote 98
Conventional wisdom has it that birth rates in developed economies started to decline after the postwar baby boom. However, Bricker and Ibbitson argue that in some countries these rates had already been declining for more than a century. In around 20 countries, such as Japan, South Korea, Spain, Italy, and some Eastern European countries, population is declining. By 2050, the number of countries with declining populations will have doubled to around forty.
The rate of increase in the world population is slowing down. In the coming decades it will slow down even more; it will stop and then reverse as a result of a declining mortality rate combined with a declining birth rate.Footnote 99
The Vienna-based Wittgenstein Centre presents a range, taking into consideration the influence of education and other social indicators. In this realm, Rosling et al. report that the number of people living in extreme poverty has almost halved, that 60% of girls in all low-income countries finish primary school, and that, worldwide, 30-year old women have, on average, spent 9 years in school.Footnote 100 If progress in them would stall, says the Wittgenstein Centre, the global population would indeed reach 12 billion by 2100. However, if current progress in these indicators continues, it will peak at 9.4 billion in 2075, after which it will drop to 8.9 billion by 2100. And if progress is even bigger, the world’s population will peak around 9 billion and decline back to 7 billion.Footnote 101
Worldwide, the number of children has already stopped increasing. Rosling concluded that 2000 was the year of ‘peak child’. Since then, the worldwide fertility rate is going down.Footnote 102 To date, half of married women in developing countries use any form of birth control. Some commentators quipped, paraphrasing Francis Fukuyama’s bestseller The End of History and the Last Man, that the world could be heading for the end of demography and the last man.
6.1.1 Falling Fertility Rates
Reduction in fertility happens when incomes and living conditions improve, when people move from rural areas to cities, and—above all—when women are literate and have access to education and contraceptives. More years in school means fewer babies—learning reduces fertility, not the other way around. In Ethiopia, for example, a household survey in 2005 found that the fertility rate for women with no formal schooling was 6.1. But for women with secondary education or more, it was only 2.0.Footnote 103
The reasons for falling fertility rates of women who received education:
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Education improves work opportunities for women which makes having children more costly in terms of income forgone;
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educated women want their own children to be educated, which raises the cost of having children;
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education and literacy make women more receptive to information about contraception;
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education and employment delay marriage and the time available to rear children;
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education improves the status, bargaining power and independence of women, encouraging and enabling them to make their own choices.Footnote 104
The million dollar question is: when will the birth rate drop? Even if fertility rates decline, birth rates may not decline in the same proportion. This is because of the simple fact that the young age structure of the population of most developing countries was triggered by high fertility rates in the past. So, there are now many young couples creating families of their own. Another question is when the so-called demographic transition will take place. This transition happens when death rates and birth rates fall together. This took place in Western Europe during the Industrial Revolution. In the typical developing country, the death rate fell rather dramatically thanks to improvements in public health, while the birth rates did not follow suit. In various cultures having many children is highly valued.
6.1.2 Demographic Dividend
A possible positive effect of population growth is the demographic dividend, consisting of a large group of young people and a much smaller group of old people depending on the young.Footnote 105 This may also speed up technological progress as young people are more conducive to new ideas. Another possible advantage may be that the pressure resulting from rapid population growth triggers incentives to increase the economy’s productivity. What remains is the challenge whether the young will be able to earn a decent income when entering the labour market. The Growth Report observes:
In a significant number of countries, the demographics run directly counter to the global trend: high fertility; reduced longevity in some cases, due to diseases like HIV/AIDS; and an increasingly youthful population. This raises the danger of widespread youth unemployment. To avert this danger, countries need to grow faster. Migration, while not alone sufficient to solve the problem of youth unemployment, would also benefit those host countries with an aging population. Well-managed long-term migration and well-supervised programs of temporary migration for work should be part of twenty-first century globalization.Footnote 106
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de Haan, P. (2020). Main Components of the Third Generation. In: Whatever Happened to the Third World?. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39613-8_6
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