Population, Economic Growth, and TFP in Developed Countries

Abstract

In this chapter, we investigate the relationship between population size and economic growth using growth accounting and empirical studies. We begin with an explanation of the production function and growth theory. Although economic growth can be achieved by increasing the amounts of either labor or capital in the production function, it can also be realized through increased efficiency or, in other words, by improving how factors are used together. This improved efficiency, which contributes to an increase in GDP, is closely related to technological progress. Since it is generally difficult to estimate technological progress in the macroeconomy, we need to identify indicators that capture technological progress for our empirical research. We will demonstrate the significance of total factor productivity (TFP), which is a proxy variable for technological progress, by using the results of growth accounting in the OECD countries. The OECD (2013) has published growth accounting data for selected countries from 1985 to 2010. From this report, we find that the average economic growth rate was 2.58 %, and the average contribution ratio of multifactor productivity (MFP) was 45.5 %. In other words, almost half the economic growth came from the contribution of MFP. After reviewing the traditional growth theory, we present our empirical results on the relationship between population growth and economic growth. Our empirical tests confirm that the relationship between economic growth and population growth is negative, as proposed in the Solow growth model. However, theoretically, population growth should spur technological progress, as discussed in the previous chapter. We therefore conduct more direct empirical tests on the relationship between population growth and technological progress in the next chapter.