Discussion Week 5 essay
Financial Penalties of Fast Inhabitants Development Writer(s): Stephen Enke Reviewed work(s): Supply: The Financial Journal, Vol. 81, No. 324 (Dec., 1971), pp. 800-811 Revealed by: Wiley on behalf of the Royal Financial Society Secure URL: http://www.jstor.org/steady/2230318 . Accessed: 13/02/2013 15:43Your use of the JSTOR archive signifies your acceptance of the Phrases & Situations of Use, obtainable at . http://www.jstor.org/web page/information/about/insurance policies/phrases.jsp. JSTOR is a not-for-profit service that helps students, researchers, and college students uncover, use, and construct upon a variety of content material in a trusted digital archive. We use info expertise and instruments to extend productiveness and facilitate new types of scholarship. For extra details about JSTOR, please contact assist@jstor.org..Wiley and Royal Financial Society are collaborating with JSTOR to digitize, protect and lengthen entry to The Financial Journal.http://www.jstor.orgThis content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/motion/showPublisher?publisherCode=black http://www.jstor.org/motion/showPublisher?publisherCode=res http://www.jstor.org/steady/2230318?origin=JSTOR-pdf http://www.jstor.org/web page/information/about/insurance policies/phrases.jsp http://www.jstor.org/web page/information/about/insurance policies/phrases.jsp ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH1I. INTRODUCTION"POPULATION" was a serious concern of the early classical economists. However subsequently it was forgotten by the career for over half a century. Immediately, when the implications of inhabitants progress are so particularly im- portant for the Much less Developed International locations (L.D.C.s), barely a dozen econo- mists are writing articles on inhabitants points.2Described under are the principal conceptual findings of a small group of economists that has been working collectively throughout the previous few years on varied initiatives regarding interactions between inhabitants progress and financial improvement.Three None of their conclusions has hitherto appeared in an financial journal.Four The time has come to current to economists the extra necessary conclusions of this group analysis as described in varied TEMPO publications.5These conclusions for Much less Developed International locations (L.D.C.s) relate to (a) distinctions between dimension, progress and fertility of inhabitants; (b) the affect of fertility discount on earnings per capita; and (c) the worldwide conse- quences of fertility differentials amongst nations.6II. DISTINGUISHING POPULATION SIZE, GROWTH AND FERTILITYIt's essential for financial analysts to differentiate among the many financial incidence of inhabitants dimension, inhabitants progress, and inhabitants fertility.Whether or not a rustic has a " massive " or " small " absolute inhabitants often ought to confer with the scale of its complete inhabitants (or labour drive) relative1 The writer is Supervisor of Financial Growth Packages, TEMPO, Basic Electrical's Centerfor Superior Research, positioned in Santa Barbara, California. He needs to acknowledge the help of Richard A. Brown of the TEMPO employees. He additionally has an apparent indebtedness to current and former colleagues as listed under, in footnote Three.2 Together with J. J. Spengler, James E. Meade, Goran Ohlin, Colin Clark, Henry Leibenstein, AnsleyJ. Coale and the writer.3Most of the analyses introduced right here have been performed below contract to america Company for Worldwide Growth. Colleagues have included Richard G. Zind, James P. Bennett, William E. McFarland, DonaldJ. O'Hara, Ross D. kckert, Arthur S. DeVany, David N. Holmes and Richard A. Brown. Nevertheless, the writer is alone accountable for the views expressed right here.Four As an alternative they've appeared in such non-economic journals as Science [3], the Journal of Biosocial Sciences, [6], and Coverage Sciences [5].5 See [1, 2, 4, 12, 13, 14 and 15], all printed by TEMPO, Santa Barbara, California, and obtainable by it or U.S.A.I.D., Workplace of Inhabitants, in Washington, D.C.6 TEMPO research in inhabitants have additionally involved the incidence of zero inhabitants progress in america, hardly attainable earlier than A.D. 2040, upon totally different industries and issue incomes [10].800This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp DEC. 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 801to the availabilities of usable pure sources and/or produced home capital. This contrasts with inhabitants densities per sq. kilometer, which by themselves have little financial which means. An economic system with little capital per employee is more likely to have a low degree of consumption, and this example can be worsened if " land " (pure sources) can be scarce. A inhabitants on this sense could also be too massive or small no matter its fee of progress. When it comes to obtainable capital, Mauritius has a " massive " inhabitants in comparison with that ofJapan, for instance.The place an already " massive " inhabitants is mixed with fast pure improve and excessive fertility, as in lands of historical tradition reminiscent of China and India, the demographic-economic state of affairs is at its worst.The financial hazard of fast inhabitants progress lies within the consequent lack of ability of a rustic each to extend its inventory of capital and to enhance its state of artwork quickly sufficient for its per capita earnings to not be lower than it in any other case can be. If the speed of technological innovation can't be compelled, and isn't superior by quicker inhabitants progress, a fast propor- tionate progress in inhabitants could cause an precise discount in earnings per capita. Fast inhabitants progress inhibits a rise in capital per employee, particularly if related to excessive crude beginning charges that make for a really younger age distribution. That is no matter inhabitants densities. Al- although Brazil has a low inhabitants density when it comes to " land," its inhabitants progress fee seems uneconomically excessive for enough capital accumulation, and extra infants can't usefully populate its " empty " lands.'Excessive fertility charges have the demographic impact of accelerating the propor- tionate variety of kids.2 A rustic with a crude beginning fee of over 40/1000 a yr is more likely to have over 40 % of its inhabitants below 15 years of age. Children below 15 years of age are vital shoppers however in- vital producers. Giant households together with many kids, with conse- quently low incomes per member of the family, are comparatively poor contribu- tors to home saving. Low financial savings per capita are related to " younger" populations and excessive fertility.Three1 Many much less developed nations (L.D.C.s) embrace massive areas of unpeopled " empty " land that superficially appear to ask further inhabitants for his or her development-as for example the Amazon Basin of Brazil. Sadly for this straightforward evaluation, excessive fertility means extra infants born, not within the Amazon Basin however the place their moms are in Sao Paulo, Rio, Recife, and so on. Even assuming that top fertility finally causes a migration of grownup staff into the Amazon Basin, they might have very low productiveness with out accompanying capital. And it's no accident that capital doesn't movement into this space, bringing individuals with it as throughout the rubber growth days, however as a substitute is profitably invested elsewhere. The " empty " land argument for prime fertility proves invalid on evaluation for many L.D.C.s.2 Age distribution is way extra delicate to age-specific fertility charges than to age-specific mortality charges.3A very younger age distribution, ensuing from excessive fertility charges, ordinarily reduces absolutely the worth of home financial savings and funding. It's because there are disproportionately few adults of working age, in order that G.N.P. is lower than in any other case. This decrease output impact shouldn't be totally offset by the truth that a inhabitants with disproportionately many kids often consumes much less from a given G.N.P., even permitting in much less developed nations for growing expenditures on education.This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 802 THE ECONOMIC JOURNAL [DEC.Public well being measures have led to quite dramatic reductions in age particular loss of life charges, particularly throughout the previous 25 to 35 years, in poor and backward nations. The " killing" epidemics reminiscent of cholera have been much more efficiently managed than "crippling " illnesses reminiscent of bilharzia. Continued excessive fertility charges have in the meantime led to pure inhabitants will increase of 2-Three % a yr that double inhabitants each 35 to 23 years respec- tively. Certainly, though typically ignored, one of many traits most distinguishing backward from superior nations is a excessive beginning fee of over 35 per 1,000 a yr (e.g., Indonesia as contrasted withJapan). Amongst nations as inside nations, excessive fertility appears to trigger relative poverty, moreover typically being a consequence of it.If a nation's inhabitants is to extend naturally at X% a yr, it's higher that this outcome from low quite than excessive crude beginning and crude loss of life charges. A 1 % annual improve for instance, ensuing from beginning and loss of life charges of 45 and 35 per 1,000, can be related to extra brutish residing than if it have been the end result respectively of charges of 25 and 15 per 1,000 a yr. Within the latter case the ratio of youngsters to work age adults can be decrease, funding from home financial savings needs to be completely higher, and the earnings per equal client can be higher.'In human phrases, and maybe much more necessary, low beginning and loss of life charges imply that there are fewer undesirable infants born too quickly and fewer untimely deaths. "Balanced " public well being programmes that embrace beginning in addition to loss of life" management " might give every household just a little extra safety. Maybe the true essence of financial improvement is that it provides households and people extra command over their lives.2III. ECONOMIc DEVELOPMENT THROUGH REDUCING FERTILITYThe financial improvement of L.D.C.s has many sides, however most of those, reminiscent of ranges of training and well being, availability of capital per employee and adequacy of infrastructure, are typically related to output and therefore additionally earnings per capita. Thus larger ratios of G.N.P. to inhabitants can often function a surrogate for financial enchancment. Furthermore, though1 The " equal client " idea accounts for the truth that relative consumption varies with age and intercourse. Thus kids sometimes eat much less personal and public sector items and companies than do grownup males of working age. Therefore, the rise in output (or earnings) per head that ordinarily follows in an L.D.C. from a discount in fertility considerably overstates the development in particular person welfare, just because there at the moment are comparatively fewer kids and extra adults. One resolution is over time to divide G.N.P. not by absolute inhabitants however by the estimated variety of equal shoppers. (See [6], pp. 48, 49.)2 It's generally erroneously supposed that, as a result of earnings per capita can arithmetically be elevated by having a smaller inhabitants, public well being programmes ought to focus extra on stopping births and fewer on suspending deaths. Nevertheless, households usually tend to save, make investments and innovate, making and following plans for their very own monetary development, if uncertainties relating to deaths may be decreased. In circumstances of frequent, unpredictable and untimely deaths in a household, planning and executing programs of motion are inhibited, besides that of getting extra births to exchange deaths.This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 803governments have typically targeting accelerating the G.N.P. progress numerator, an growing variety of L.D.C.s at the moment are additionally involved with slowing the inhabitants progress denominator.Rationally, if a authorities intends to spend $X over, say, 10 years to extend output per head, it ought to estimate whether or not it might obtain a higher improve on this ratio by expenditures on contraception than on invest- ments in bodily capital. Actually, the place the marginal product of labour approaches zero, a discount in births for, say, a decade should elevate per capita earnings later. On this case, expenditures for contraception should be many occasions simpler per greenback in elevating per capita earnings than expenditures for plant and gear.'The place labour has a really low marginal product relative to that of capital, which is apparently the case in most backward as in contrast with most ad- vanced nations, virtually all economic-demographic fashions point out that a gradual halving of fertility over a number of a long time raises earnings per head considerably. The lack of labour drive after 15 years is greater than offset by the extra fast improve in per capita earnings and in combination saving. After 15 years there may be much less labour however extra funding than in any other case, with extra capital and output per employee, a decrease underemployment fee, and fewer shoppers to share in a G.N.P. that has grown about as quickly as it will have performed with unchanged fertility.This has been proven in a number of analyses, each for an summary nation known as Developa, and for Guatemala, Turkey and most lately Chile.2The primary components of the dynamic mannequin used are:V/P, Gross home product per head, which by wiser public and/or personal actions one hopes to see rising quicker than it will in any other case;B, births, which rely on preliminary and altering age distributions and on projected age-specific fertility charges;D, deaths, which rely on projected age-specific mortalities, age dis- tributions, and so on.;P, inhabitants, which is arithmetically final yr's inhabitants plus B minus D; Three1 The place the marginal product of labour is zero, or when the evaluation is for a 10-year interval throughout which prevented infants don't attain 15 years to change into misplaced staff, a discount in births can't cut back G.N.P. and should elevate earnings per head above what it in any other case can be. That is additionally as a result of the price of the contraceptives wanted to forestall a beginning is a lot lower than the discounted price of the funding in any other case wanted to supply a typical annual movement of products and companies to an additional particular person. Such a profit/price comparability is repugnant to some, however no much less legitimate on that account. See additionally [9].2 See [1 1, 14 and 15]. Three Worldwide migration is right here ignored. For nations with the worst inhabitants densitiesand growths, there may be virtually no in-migration and web out-migration is trivial in proportion phrases. Emigration can seldom present aid for inhabitants strain both. A 1% emigration from India would imply 5 million individuals (web) transferring completely overseas every year. In itself this may represent a serious transportation job, higher than present air journey throughout the North Atlantic. Extra significantly maybe, there will not be sufficient nations prepared and in a position to obtain such a movement ofThis content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 804 THE ECONOMIC JOURNAL [DEC.V, gross domestic product, which is a function of employed labour force, domestic capital stock and state of technology;K, stock of capital, which increases according to aggregate domestic saving plus capital borrowings from abroad; 1S, aggregate domestic saving, which is positively related to V and nega- tively to P;E, employed labour force, positively related to L and K, with E/L being monotonically related to K/E;L, available labour force, a function of population size and age distri- bution;T, technology, with improvements in the state of art resulting in more V from a given E and K.In the models usually employed to date, V has been determined by a modified Cobb-Douglas function, in which the output elasticities of E and K have sometimes summed to less than unity to reflect scarcity of natural resources. The influence of technology has been compounded at a fixed annual rate and is incorporated in the aggregate production function as a shift factor.2 Births and deaths have influenced V indirectly through L, K and hence E, while affecting P directly.3The models have been used to examine contrasting fertility projections upon projected V and P, and hence V/P, over the next 35 years or so. Calcula- tions are year by year. Results are usually tabulated at 5-year intervals.In Table I, for an abstract country named Developa, a constant G.R.R. (gross reproduction rate) of 3-025 is contrasted with the case of a G.R.R. that falls by arithmetic retrogression from 3.025 to 1-479 over 25 years.4 Subsequent V is hardly affected, the decline in fertility raising K enough to compensate for the fall in L. This increase in K results from a " release " of consumption, part of which is additional saving, because the number ofpeople. The few small countries that do receive a considerable population growth from im- migration-over 5% in Kuwait's case-are atypical. The migration that does affect economic development is the internal flow to city from countryside. These effects are now being incorporated into a two sector economic-demographic model being developed at TEMPO.1 The basic model assumes no net international transfers of capital. It is programmed however to allow for any year to year exogenous capital movements that the analyst cares to assume. A modified programme also provides for enough inflow of capital in each year to maintain a stipulated constant annual improvement in V/P.2 This reflects an agnostic uncertainty as to whether technology is especially associated with, say, increased capital stock, improved worker education, or general level of welfare. In effect *' technology " here is the residual source of all increased output that cannot be attributed to capital or labour increments. The main impact of a high rate of " technology " improvement in this model is to reduce the comparative importance of reducing fertility in raising projected V/P.3 In this formulation the demographic " side " of the model affects the economic side, but not conversely. Conceptually it could be supposed for instance that a rising V/P after some lag would reduce age specific fertilities. However, while this relation is often asserted, it has still to be demonstrated.4 The gross reproduction rate is the number of live female births a typical woman will have during her child-bearing years.This content downloaded on Wed, 13 Feb 2013 15:43:53 PM All use subject to JSTOR Terms and Conditionshttp://www.jstor.org/page/info/about/policies/terms.jsp 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 805kids declines comparatively. There may be much less unemployment, and extra output per employee, as a result of the Ok/E ratio is larger. With related V, however a smaller- than-otherwise P, V/P is larger.'Particularly, taking the case summarised in Desk I, V/P rises from $200 a yr in 1970 to $419 with low fertility as in opposition to $293 with excessive fertility by A.D. 2000. After thirty years, with low fertility the capital inventory is biggerTABLE IResults of Declining Fertility on Output and Per Capita Earnings in " Developa"Merchandise. 1970 1985 2000 Excessive Low Excessive Lowfertility. fertility. fertility. fertility.P, Inhabitants (106) 10-Zero 15.9 14-Four 25-7 18-Eight V, Output ($109) 2-00 Three.54 Three-63 7.53 7-87 VIP, Earnings per head ($) 200 223 251 293 419 L, Accessible labour (106) Three-61 5-69 5-69 9l10 Eight.32 Unemployment fee (%) 15 18 16 10 6 Ok, Capital inventory ($109) 5 00 7-06 7-28 13-20 15-57 Ok/E, Capital per employee ($) 1,626 1,509 1,521 1,637 1,984 SIV, Financial savings from earnings (%) Four.7 6-Four 79 9-6 12-5 Earnings per employee ($) 325 378 378 459 501 Return on capital (%) 16 20 20 23 20 Youngsters/Inhabitants (%) 44 44 39 45 32 G.R.R., gross copy fee Three-Zero25 Three-Zero25 2-092 Three-Zero25 1479 Feminine life expectancy (years) 55 Zero 58-Zero 58-Zero 610 61-ZeroN.B. These numerical outcomes, using the preliminary circumstances of 1970 and the financial para- meters listed within the textual content, have been developed from the TEMPO demographic-economic mannequin, described intimately in Reference [1, 12].($15.57 billion as in opposition to $13-20 billion), capital per employee is larger($1,984 as in opposition to $1,637), and the unemployment fee is decrease (6% as in opposition to 10%). The relative shortage of labour has elevated after 30 years, with annual earnings per full-time equal employee of $501 as in opposition to $459, whereas the return on capital is Three percentile factors decrease than with excessive fertility. One primary purpose for higher financial efficiency is that by A.D. 2000 kids are 32% of the inhabitants with low fertility as in contrast with 45 % with unchanged excessive fertility.The end result of a higher-than-otherwise V/P with declining fertility has been proven to be most insensitive to labour and capital output elasticities, expertise enchancment charges, the financial savings equation, the employment of labour perform, or the projected exogenous decline in mortality charges. For every single comparability of projected fertility variations, these assumptions, and naturally the preliminary circumstances of inhabitants dimension, age distribution and1 The tables are for a case the place expertise improves Zero-Zero15 a yr compounded, the output elasticities of employment and capital are Zero 5 and Zero-Four respectively, and combination home financial savings are Zero-8V-$35P.No. 324.-VOL. LXXXI. 3HThis content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 806 THE ECONOMIC JOURNAL [DEC.capital stock, are always similar. In every case, if fertility is declining faster, V/P is nevertheless rising faster.'A related point is that a lower fertility means slower population growth and hence more time for domestic capital to accumulate and the state of art to improve. This is shown in Table II, based on the same case as Table I,TABLE IIContrasting Attainment of Same Population in Different Years: Unfavourable Economic Consequences of Fast Population Growth in " Developa"Item. 1985 1990 (High fertility). (Low fertility).P, Population (106) 15-9 15-9 V, Output ($109) 3-54 4-68 V/P, Income per head ($) 223 295 L, Available labour (106) 5-69 6-57 Unemployment rate (%) 18 18 K, Capital stock ($109) 7 06 8-98 K/E, Capital per worker ($) 1,509 1,543 S/V, Savings from income (%) 6-4 9.4 Earnings per worker ($) 378 402 Return on capital (%) 20 21 Gross reproduction rate 3-025 1 817 Female life expectancy (years) 58-0 59.0Source: Same as Table I.the difference being that Developa attains a population of 15-9 million in A.D. 1985 with unchanged fertility but only in A.D. 1990 with declining fertility. By waiting 5 more years for its population of 15-9 million, De- velopa can provide this size of population with a yearly V/P of $295 instead of $223, having a larger labour force (6.57 million as against 5-69 million) and a larger capital stock ($8.98 billion as against $7-06 billion). The argu- ment is not that Developa should never have a much larger population. It is rather that population growth must be slow, regardless of" empty " lands waiting to be populated.Dynamic models of this kind can also be used to sense the " return "1 See [13] for an in depth account of the sensitivity evaluation. Nevertheless, some feeling for the insensitivity of the primary conclusion of the evaluation, particularly that a extra fast decline in fertility hardly impacts V whereas considerably reducing P under what it will in any other case be, may be gained from the next ratios given within the cited doc (which used barely totally different parameters for its manufacturing perform.) In that case, by A.D. 2000, the " low fertility P " was 27% under the " excessive fertility P " in all of the calculations, and for the usual set of parameters, the ratio of " excessive fertility V " to " low fertility V " was 1 005. If the speed of annual technological improve- ment was 2.5% as a substitute of 1-5%, this ratio was 1-022. If the financial savings perform weren't Zero*2V-$30P however quite Zero 07V, this ratio was 1 036. If the respective output elasticities of capital and labour weren't Zero Four and Zero-6 however quite Zero 5 and Zero 5, this ratio was not 1-005 however Zero-988. The outcomes are additionally very insensitive to economies or diseconomies of scale: thus, if the output elasticities sum to not unity however to Zero 7 and 1-25 respectively, the A.D. 2000 ratios of V weren't 1-005 however respectively Zero-987 and 1-Zero16. Altogether, the interactions of the mannequin appear to dampen the impact of altering assumed parameters and preliminary circumstances, a state of affairs that strengthens the credibility of the conclusions.This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 807from " investments " in contraception. This in fact requires an assump- tion as to the annual price per efficient contraceptive person and the age distri- bution of those voluntary " acceptors." The " return " or achieve can fairly be outlined because the achieve in earnings per head occasions the inhabitants having fun with it. Over a interval of 35 years this benefit-to-cost ratio ranges between 50 and 150 to 1.1 However for any historic interval this arithmetic ratio should understate the return, particularly for shorter durations, for even with no future prices there'll at all times be future and usually growing positive factors from previous contraceptive expenditures.2In these circumstances preliminary " dimension " of inhabitants is of minor significance. If pure sources are very scarce, in order that there are markedly diminishing returns to labour and capital taken collectively, it's true that decreased labour employment due to decreased fertility events a smaller loss in V attri- butable to E. However by the identical token the rise in V attributable to extra Ok with fewer births can be smaller.Extra necessary than dimension of inhabitants is the altering fee of its progress. An growing progress fee, particularly when resulting from a declining loss of life fee, is economically disastrous. A reducing inhabitants progress fee, due to declining fertility charges, is a serious supply of financial improvement.ThreeIV. INTERNATIONAL CONSEQUENCES OF FERTILITY DIFFERENCESExcessive fertility charges are inclined to restrict what L.D.C.s can export and as well as make them much less creditworthy as worldwide debtors.Worldwide commerce concept has at all times emphasised that what nations export and import relies upon largely on relative issue costs. International locations with excessive fertility charges have a comparative benefit in labour intensive merchandise, as a result of comparatively their labour's marginal productiveness is low and their capital's marginal productiveness is excessive. Nevertheless, as a result of excessive fertility nations have low per capita incomes, there are further commerce penalties.Excessive-fertility, low-income nations typically export major agricul- tural commodities, apart from these few and lucky nations possessed of1 Within the Desk I case this profit/price ratio is 116 to 1 by A.D. 2000. The annual price of prac- ticing contraception is assumed to be $5 a yr per person and effectiveness is meant to be Zero-Eight. The distribution of customers by age is proportionate to the discount in age particular fertilities assumed for the decrease fertility case within the comparability. Thus the profit/price ratios obtained from these dynamic economic-demographic fashions are very related in magnitude to the profit/price ratios estimated in 1966 by far easier and static means and printed in thisJouRNAL. [9]2 See References [6] and [8]. Three After all an L.D.C. can as a substitute elevate its annual fee ofper capita earnings enchancment by quickerinnovating or saving. It's easy to calculate for any given case what these " trade-offs " are amongst fertility, financial savings, and innovating fee adjustments. (See Reference [6].) However calculating arithmetical equivalences when it comes to VIP enchancment doesn't create operational alternate options. Households don't save or innovate extra as a result of they improve their fertility. In truth a extra believable argument could be that the type of households which follow contraception successfully are more likely to be distinctive savers and innovators.This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 808 THE ECONOMIC JOURNAL [DEC.valuable mineral assets such as petroleum. Poverty makes for a consumption pattern of basic " necessaries," and hence a domestic production pattern of limited variety. Poor countries cannot afford the technological education and do not have the high-income market needed for products that are tech- nically advanced, superior in performance or which incorporate high styling. With less capital, the workers of these countries must compete for foreign exchange largely through muscle power, usually applied to exporting sugar, coffee and other products of tropical agriculture. Such a worsening of the terms of trade between backward and advanced countries as may in fact have occurred 1 is probably as much due to continued fertility differentials among nations as to any other single cause. Those L.D.C.s that are too much dependent on agricultural exports to finance adequate industrial product imports should usually blame their own excessive fertility.The same high fertility rates that increase the " need " for assistance of L.D.C.s also make them less creditworthy as borrowers and hence more dependent on grants. Aspirations for G.N.P. increase are often several per- centile points higher than is realistic because of the typically expected 3% annual growth in population. This in turn " requires " a larger yearly increment in capital stock. But the low ratio of work age population to children caused by high fertility reduces output and aggregate savings for investment. Unfortunately, the very inability to save that "requires" external borrowing also makes subsequent repayment difficult or impossible. Savings are after all the ultimate source of repayment.These interactions can also be explored by the TEMPO economic- demographic model. A " required " annual improvement in per capita income can be stipulated. The computer can be programmed to assume an inflow or outflow of capital in each year depending on whether domestic savings are respectively insufficient or excessive to occasion precisely the stipulated improvement in per capita income. Ordinarily, if an L.D.C. stipulates an unrealistic annual improvement, it will never be able to repay its borrowings with interest. Alternatively, an L.D.C. with a lower fertility may be able to realise a higher annual improvement in per capita income, and eventually service all borrowings from abroad, than can an L.D.C. with higher fertility.Considering Developa again, Table III indicates some borrowing and repayment consequences of aspiring to alternative constant improvements in per capita income, contrasting again the two economic projections based on the same high and low fertility projections. Thus the highest sustainable annual improvement in per capita income is under 2 0% (actually 1.8%) with high (unchanged) fertility and over 2-5% (actually 2-9%) with low fertility if external borrowings are ever to be repaid (including a 5 % annual1 It is by no means clear that the barter terms of trade have generally worsened for backward countries when unquantified improvements in industrial products exported from advanced coun- tries are taken into account.This content downloaded on Wed, 13 Feb 2013 15:43:53 PM All use subject to JSTOR Terms and Conditionshttp://www.jstor.org/page/info/about/policies/terms.jsp 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 809rate of interest on the excellent steadiness). Even at 1.5% yearly improve- ment, high-fertility Developa doesn't start compensation earlier than 30 years, however a low-fertility Developa can aspire to a 2-5 % annual enchancment and begin compensation after 21 years. Alternatively, for a 1.5% sustained annual enchancment in VIP, accomplished debt service takes 42 and 16 yearsTABLE IIIResults of Fertility on Developa's Capability to Service Money owed whereas realising a Stipulated Annual Enchancment in Earnings Per Capita.Future yr Future yr Debt excellent Stipulated when compensation when loans are when compensationannual of principal utterly begins (a) enchancment begins. (b) repaid. (tens of millions ofin G.N.P. _ _ _ _ _ _ __ _ _ _ __ dollars). per capita. Fertility Fertility FertilityExcessive Low Excessive Low Excessive Low10 14 5 23 10 482 130 15 30 1 1 42 16 2643 415 2.Zero (a) 14 (a) 23 (a) 1066 2.5 (a) 21 (a) 33 (a) 2743(aj Debt by no means repaid. (b) Compensation begins within the yr that home saving first turns into higher than is required to grasp the stipulated annual enchancment in per capita earnings. (c) To be in contrast with preliminary yr G.N.P. of $2,000 million. Supply: Similar as Desk I, plus Reference [7].respectively with excessive and low fertility, with a respective most out- standing debt of $2,643 and $415 million.1The credit score unworthiness related to excessive fertility might give inter- nationwide lending companies a strong and extra acceptable technique of in- ducing sure L.D.C.s to undertake vigorous contraception programmes. It might be politically unattainable for, say, the World Financial institution Group to make a mortgage for infrastructure conditional upon the borrowing authorities's pro- moting contraception. However improvement help companies when making loans are actually entitled to think about all components influencing a borrowing L.D.C.'s potential or lack of ability to repay. It's, in any case, a traditional follow of debtors to just accept mortgage circumstances. One downside all through the 'Fifties and early 'Sixties was that worldwide lending companies weren't ready to do something about maybe crucial single reason behind poverty in L.D.C.s-excessive inhabitants progress.1 Desk III is predicated on the belief that every yr Developa borrows precisely sufficient from overseas to extend its home funding sufficiently to take care of the stipulated X% annual enchancment in VIP. Alternatively, if home saving is greater than sufficient to take care of this X% enchancment, the surplus home saving is used to repay worldwide borrowings. The exterior legal responsibility for debt service features a 5% curiosity cost on the present yr's excellent debt. See Reference [7].This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp 810 THE ECONOMIC JOURNAL [DEC.V. COMMENTStudies of political economy cannot logically fail to study people and hence populations. Economic development largely concerns the develop- ment of people, which means investments in education and health as well as in physical capital, both of which are encouraged when lower birth rates make labour more scarce relative to capital. One of the distinguishing and surely significant characteristics of Less Developed Countries is their high fertility rates and their consequently high proportion of unproductive children. Reductions in fertility enable domestic capital to be accumulated more rapidly. Greater future savings of L.D.C.'s because of effective birth control programmes should render them more credit-worthy. The poverty induced by high fertility also affects commodity flows and terms of trade. The influences of population growth are so pervasive throughout all macro- economic relations that they should surely become a major concern of the economics profession.STEPHEN ENKEGeneral Electric Company- TEMPO Santa Barbara, California.REFERENCES1. A. DeVany and S. Enke, Population Growth and Economic Development: Back- ground and Guide, Santa Barbara, TEMPO, 1968, No. 119.2. R. Eckert and D. O'Hara, Manualfor the Calculation of Government Expenditures for Selected Social Services, Santa Barbara, TEMPO, 1968, No. 121.3. S. Enke, " Birth Control for Economic Development," Science, May 1969, No. 164, pp. 798-802.4. S. Enke, Economic Benefits of Slowing Population Growth: Charts and Notes, Santa Barbara, TEMPO, 1968, No. 122.5. S. Enke, " The Economics of Having Children," Policy Sciences, June 1970, No. 1, Vol. 1, pp. 15-29.6. S. Enke and R. G. Zind, " Effects of Fewer Births on Average Income," Journal of Biosocial Sciences, January 1969, Vol. 1, pp. 41-55.7. S. Enke, " High Fertility Impairs Credit Worthiness of Developing Nations," (Festschrift in honour of Professor Edgar Hoover, title not chosen) (Gordon and Breach, 1971).8. S. Enke, " Politico-Economic Global Systems," Macrosystems: Analysis, Instru- mentation, and Synthesis of Complicated Systems, Spring, 1971, Holt, (Reinhart and Winston).9. S. Enke," Some Aspects of Slowing Population Growth," ECONOMICJOURNAL, March 1966, No. 76, pp. 44-56.10. S. Enke, Zero US Population Growth-When, How and Why, Santa Barbara, TEMPO, 1970, No. 35.This content downloaded on Wed, 13 Feb 2013 15:43:53 PM All use subject to JSTOR Terms and Conditionshttp://www.jstor.org/page/info/about/policies/terms.jsp 1971] ECONOMIC CONSEQUENCES OF RAPID POPULATION GROWTH 8111 1. Bruce Herrick and R. Moran, " Financial Results of Chilean Fertility Decline,' Santiago, Chile, Centro de Investigaciones Economicas, Universidad Catolica de Chile (to be printed).12. W. E. McFarland, Description of the Financial-Demographic Mannequin, Santa Bar- bara, TEMPO, 1968, No. 120.13. W. E. McFarland, Sensitivity Evaluation of the Financial-Demographic Mannequin, Santa Barbara, TEMPO, 1969, No. 52.14. W. E. McFarland and D. O'Hara, Guatemala: The Results of Declining Fertility Santa Barbara, TEMPO, 1969, No. 50, Vol. II.15. W. E. McFarland and D. O'Hara, Turkey: The Results of Falling Fertility Santa Barbara, TEMPO, 1969, No. 50, Vol. I.This content material downloaded on Wed, 13 Feb 2013 15:43:53 PM All use topic to JSTOR Phrases and Situationshttp://www.jstor.org/web page/information/about/insurance policies/phrases.jsp Article Contents p. 800 p. 801 p. 802 p. 803 p. 804 p. 805 p. 806 p. 807 p. 808 p. 809 p. 810 p. 811 Difficulty Desk of Contents The Financial Journal, Vol. 81, No. 324 (Dec., 1971), pp. 741-1061+i-xv+i-xii Quantity Data [pp. i - xii] Entrance Matter The Idea of Financial Surplus and Its Use in Financial Evaluation [pp. 741 - 799] Financial Penalties of Fast Inhabitants Development [pp. 800 - 811] Richard Cantillon, Financier to Amsterdam, July to November 1720 [pp. 812 - 827] A Principle of the Economics of Time [pp. 828 - 846] Rosa Luxemburg and the Impression of Imperialism [pp. 847 - 862] Speculation and Paradigm within the Principle of the Agency [pp. 863 - 885] The Change Constraint on Growth--A Partial Resolution to the Drawback [pp. 886 - 903] Tariffs, Financial Welfare and Growth Potential [pp. 904 - 915] Notes and Memoranda Hicks on Ricardo on Equipment [pp. 916 - 922] A Reply to Professor Seashore [pp. 922 - 925] Competitiveness of Exports: A Micro-Stage Strategy--A Remark [pp. 925 - 927] Competitiveness of Exports: A Micro-Stage Strategy--A Reply [p. 928] The Integration of Fairness and Effectivity Standards in Public Undertaking Choice: A Remark [pp. 929 - 931] Reply to Dr. Mathur [pp. 931 - 933] Current Contributions to the Principle of Marginal Value Pricing: The Drawback of Peak Hundreds [pp. 934 - 936] Keynes on Lloyd George [pp. 936 - 937] Present Subjects [pp. 938 - 942] Evaluations untitled [pp. 943 - 944] untitled [pp. 944 - 946] untitled [pp. 946 - 947] untitled [pp. 948 - 949] untitled [pp. 950 - 951] untitled [pp. 951 - 953] untitled [pp. 953 - 955] untitled [pp. 955 - 956] untitled [pp. 956 - 958] untitled [pp. 958 - 960] untitled [pp. 960 - 962] untitled [pp. 962 - 965] untitled [pp. 965 - 968] untitled [pp. 968 - 971] untitled [pp. 972 - 974] untitled [pp. 974 - 977] untitled [pp. 977 - 979] untitled [pp. 979 - 981] untitled [pp. 981 - 982] untitled [pp. 982 - 985] untitled [pp. 985 - 987] untitled [pp. 987 - 989] untitled [pp. 989 - 991] untitled [pp. 991 - 993] untitled [pp. 993 - 994] untitled [pp. 994 - 996] untitled [pp. 996 - 998] untitled [pp. 998 - 1000] untitled [pp. 1000 - 1002] untitled [pp. 1002 - 1004] untitled [pp. 1004 - 1006] untitled [pp. 1006 - 1009] untitled [pp. 1009 - 1012] untitled [pp. 1012 - 1015] untitled [pp. 1015 - 1017] untitled [pp. 1017 - 1019] untitled [pp. 1019 - 1020] untitled [pp. 1020 - 1022] untitled [pp. 1022 - 1024] untitled [pp. 1024 - 1026] New Books [pp. 1027 - 1061] Again Matter [pp. i - vi] -research paper writing service