Introduction

In recent decades, the fertility rate of the more developed countries has fallen below the population replacement level. In other words, the population in these countries is declining.

Note. Live births per woman (United Nations, 2024).

Furthermore, as can be seen in the chart, the downward trend in birth rates does not seem to be exclusive to developed countries. In 1950, the global average of children per woman was around five, while in 2023 it was just above two. This dynamic suggests that the world might be heading towards negative population growth rates. In fact, United Nations projections estimate negative population growth for 2080; however, this could happen sooner, as the UN has repeatedly overestimated the number of live births per woman in several countries (Burn-Murdoch, 2024). From this observation, two questions immediately arise: why might it be relevant that population growth is negative from an economic development perspective? And what are the causes of the more developed countries having fertility rates below the population replacement level?

Consequences of Negative Population Growth

According to standard modern economic development models with technological growth (Aghion & Howitt, 1992; Jones, 2019; Romer, 1990), the rate of productivity growth positively depends on the number of people engaged in research. The intuition is simple: the more people dedicate their time to thinking of new ideas, the more ideas will be produced. On the other hand, ideas are non-rival goods (i.e., if someone has an idea, everyone can use it simultaneously), allowing a new production method to be implemented immediately by all once it is discovered.

Why is this relevant? Suppose there is a factory that uses productive factors to generate a certain good. If we were to build an identical factory, we would obtain double the product than with a single factory. This indicates that there are constant returns to scale in the factors of production: a proportional increase in them results in a proportional increase in the product. However, if in addition to proportionally increasing the factors, we also increased the stock of ideas by the same proportion, the product would grow more than proportionally. For example, if in addition to duplicating the factory in our case, we developed a new production process, the quantity produced would be greater than double. This suggests that there are increasing returns to scale in both the factors of production and the stock of knowledge.

However, increasing returns to scale do not ensure that when inputs are reduced, the product decreases by a lesser amount: in fact, when the employed factors decrease by a certain proportion, the product decreases by a larger proportion. This is the key to why a reduction in population can have relevant effects on economic growth.

When the population growth rate is positive, the stock of ideas grows because there are more researchers, and since the per capita capital growth rate is also positive (Kaldor, 1961), the product grows more than proportionally to the population due to the existence of increasing returns to scale, which implies an increase in per capita product. In other words, increasing returns to scale mean that population growth drives economic growth (Jones, 1995). For the same reason, declines in birth rates reduce the rates of growth of per capita product. This corresponds to a decrease in the rate of population growth causing the product to decrease in greater proportion than the population, due to the existence of increasing returns to scale and the reductions in both the stock of knowledge and the productive factors employed. When the population growth rate decreases sufficiently and becomes negative, fewer ideas are produced, which slows the growth of the stock of knowledge and ultimately stagnates per capita product (Jones, 2022; Sasaki & Hoshida, 2017).

In this sense, it is important to determine whether the observed negative population growth rates are a transitory or permanent phenomenon, and to do so it is necessary to adequately elucidate their causes.

Possible Causes

              According to Doepke, Hannusch, Kinde, and Tertilt (2023), the determinants of fertility rates in advanced economies are currently qualitatively different from those of past decades. Whereas previously fertility was negatively related to income, education, and women's labor market participation, today these relationships have reversed in developed economies (Feyrer, Sacerdote, & Stern, 2008).

              On the other hand, evidence suggests that cultural factors are relevant in determining fertility rates: for second-generation American women, the fertility rate of their country of ancestry is a significant variable in predicting how many children they will choose to have (Fernández & Fogli, 2009). This stylized fact helps us understand the differences in birth rates between different countries, but fails to explain why rates have fallen below the population replacement level, nor why even in developing countries the same dynamics seem to be occurring with ever-lower birth rates.

              The simplest explanation would be that people simply do not value having children enough (Jones, 2022). In this case, the high birth rates of past centuries could be explained by the impossibility of separating sexual intercourse from its reproductive consequences, either due to lack of access to contraceptives or cultural factors. This explanation still requires validation with a quantitative model that reproduces negative population growth rates, although it is a fact that access to the contraceptive pill effectively reduced fertility expectations (Goldin & Katz, 2002).

              Finally, it could be true that people do value having children, but the inadequate technology for having children after the age of forty (Doepke, Hannusch, Kinde, & Tertilt, 2023) does not manage to counteract the negative effect of delaying childbirth (caused by greater income uncertainty at the end of the 20th century) on fertility rates (Sommer, 2016).

Conclusions

              The population level is a determining factor in economic growth. When negative population growth rates persist for a long time, traditional economic development models predict a decline in per capita product growth rates due to the existence of increasing returns to scale. Therefore, it may be concerning that the fertility rate in advanced countries is below the population replacement level, especially considering that other countries are following the same trajectory. Moreover, it is not clear what the elements influencing this phenomenon are. In conclusion, more studies are needed to understand the new population transition and its short- and long-term consequences.

Bibliography

Aghion, P., & Howitt, P. (1992). A Model of Growth Through Creative Destruction. Econometrica, 60, 323-351. Retrieved from http://www.jstor.org/stable/2951599

Burn-Murdoch, J. (2024, October 25). Peak population may be coming sooner than we think. Financial Times.

Doepke, M., Hannusch, A., Kinde, F., & Tertilt, M. (2023). The economics of fertility: a new era. In Handbook of the Economics of the Family (pp. 151-254). North-Holland. doi:10.1016/bs.hefam.2023.01.003

Fernández, R., & Fogli, A. (2009). Culture: An Empirical Investigation of Beliefs, Work, and Fertility. American Economic Journal: Macroeconomics, 1, 146–177. doi:10.1257/mac.1.1.146

Feyrer, J., Sacerdote, B., & Stern, A. D. (2008). Will the Stork Return to Europe and Japan? Understanding Fertility within Developed Nations. The Journal of Economic Perspectives, 3-22.

Goldin, C., & Katz, L. F. (2000). Career and Marriage in the Age of the Pill. The American Economic Review, 461-465.

Goldin, C., & Katz, L. F. (2002). The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions. Journal of Political Economy, 110, 730-770. doi:10.1086/340778

Jones, C. I. (1995). R & D-Based Models of Economic Growth. Journal of Political Economy, 103, 759-784. doi:10.1086/262002

Jones, C. I. (2019). Paul Romer: Ideas, Nonrivalry, and Endogenous Growth. The Scandinavian Journal of Economics, 121, 859-883. doi:10.1111/sjoe.12370

Jones, C. I. (2022). The End of Economic Growth? Unintended Consequences of a Declining Population. American Economic Review, 112, 3489–3527. doi:10.1257/aer.20201605

Kaldor, N. (1961). Capital Accumulation and Economic Growth. In N. Kaldor, The Theory of Capital: Proceedings of a Conference held by the International Economic Association (pp. 177-222). London: Palgrave Macmillan UK.

United Nations. (2024). World Population Prospects 2024, Online Edition.

Romer, P. M. (1990). Endogenous Technological Change. Journal of Political Economy, 98, S71-S102. doi:10.1086/261725

Sasaki, H., & Hoshida, K. (2017). The Effects of Negative Population Growth: An Analysis using a Semiendogenous R & D Growth Model. Macroeconomic Dynamics, 21, 1545–1560. doi:10.1017/S1365100515000991

Sommer, K. (2016). Fertility choice in a life cycle model with idiosyncratic uninsurable earnings risk. Journal of Monetary Economics, 83, 27-38. doi:10.1016/j.jmoneco.2016.08.002