Empty Planet: How Declining Populations Kill Economic Growth

  • Date: 16/01/20
  • Livemint

Slowing population growth may hurt the discovery of new ideas and lead to economic growth stagnating, finds new study

Note: The total fertility rate is the average number of live births a hypothetical cohort of women would have over their reproductive life if they were subject during their whole lives to the fertility rates of a given period and if they were not subject to mortality. Each data point corresponds to a five-year period. Source: United Nations (2019).

Across the world, falling fertility rates are driving down population growth rates. In some countries, populations could actually soon decline because of negative population growth rates. Slower and negative population growth, as countries such as Japan are experiencing currently, will have important implications for both societies and economies. One of the biggest effects could be on economic growth, according to new research.

In the study, Charles I. Jones of Stanford University reworks traditional economic growth models to account for slowing population growth. In traditional growth models, population growth is expected to increase or remain constant. According to these models, population growth leads to greater economic growth. This is because more people in an economy means more ideas which in turn are an important driver of economic growth. When Jones adjusts this model for falling population growth, he finds that declining populations reduce the labour force, stagnate research, produce fewer ideas and lower living standards. Ultimately, this could lead to a doomsday ‘empty planet’ scenario where the entire population vanishes.

However, he also shows that if fertility rates can be increased, through fertility policies, then future economic growth could look drastically different. He suggests there is an optimal fertility rate that could lead to an ‘expanding cosmos’ of sustained population growth, expansion of knowledge and improvement in living standards. Finally, he acknowledges that economic growth could still be possible with falling fertility rates if automation enhances our ability to produce more ideas even with a declining population. Similarly, if technology lowers mortality rates then populations could still grow even with declining fertility rates.

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