One of the most widely quoted economic aphorisms is, “Keep the economy growing, and population growth, and you are sure to win. In the long run, population growth guarantees economic growth.” Sounds like an intelligent concept, doesn't it? The question really is, does the theory hold up in reality?
For this question, let's consider the facts. First of all, although it is true that population growth contributes to economic growth, it does not automatically result in the latter. For instance, if there is a very high level of population growth in a country such as India, but this growth is accompanied by economic slowdown, does this imply that the economy of India will contract? Not necessarily.
To understand this better, it helps to understand what population growth actually is. Population is merely the number of people for which a country or state constitutes a measurable area. Economically, population growth is nothing but the difference between total population and the number of economically active people. Economic activity refers to the total value of all transactions involving money-producing activities of persons taking place in a given economy.
This can be thought of in another way. If a town has a large population but very few economically active people, it is not doing very well economically. But if that same town has a relatively small population but a large number of economically active people, it is doing very well economically. Now this example illustrates two important concepts. One is that population growth itself is neither beneficial nor detrimental to economic growth. The other is that although population growth can slow economic growth, it can be offset by increased levels of economic activity on the part of the residents of a town or state.
As population increases, more people are being employed in more jobs. This leads to an increase in the amount of money being spent. This drives up the level of economic activity, creating jobs, increasing income, and, eventually, keeping the economy growing at a rate that is consistent with population growth.
So how does population growth affect economic growth? In the short term, it can keep a town or state growing at a rate that is above the rate of inflation. In the long run, population growth can have significant negative effects on a state or the nation's economy. Here are three examples of why population growth can have short term and/or long term effects on growth:
* Population influx, or moving people from one area of the country to another, can create a glut of workers in a particular field, causing wages to increase (and taxes to increase) in the new area. This is true whether the population growth is coming directly from immigration, like the current case of Mexico, or is just the result of population movement, as is the case in Australia. Some researchers believe this has an effect on real estate prices because more renters could mean a decreased demand for residential property. Whether the effect is positive or negative is hard to say, especially since it is still early in the research stage.
* Population movement can create negative implications for the environment, causing displacement of native species and changing the dynamics of ecosystems. Whether this is of long term concern or not, it can have an immediate effect on local businesses. For example, if businesses are forced to hire workers from other areas in order to remain competitive, some businesses may be forced to move to another area entirely.
* One of the primary reasons for population growth occurs is due to migration. When someone moves to a new city or state, they generally look for work opportunities closer to where they live. Even if that means looking for jobs further away in another part of the country, it may be worth the time and effort to relocate. Whether the decision is made for economic or social reasons, it will most likely be impacted by the amount of available jobs within the new area.
Of course, population size also impacts on national economic development, as well. The smaller a city or county is, the less likely it is that residents there will have access to high-paying jobs. Incomes will tend to be lower, which can lead to lower consumption of goods and services and less investment in infrastructure. This can translate to less tax income for the government. Whether the impact of population growth is positive or negative is hard to say at this point in time.
No matter how you look at it, population growth does have some negative implications for some countries, especially when it comes to tourism. Demographically unstable areas may struggle to meet tourism demand and can affect the amount of visitors to popular destinations. It is still too early to determine the full ramifications of population growth, but one thing is clear: it is a topic that merits some close attention.
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