The'Malthusian'model''

“The'most'decisive'mark'of'the'
prosperity'of'any'country'is'the'
increase'in'the'number'of'its'
inhabitants”.'[Adam'Smith].''
'
Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Introduc4on'
•  Malthus'contended'that'a'fixed'amount'of'natural'resources'
could'not'feed'a'constantly'increasing'popula4on.''
•  Socie4es'throughout'history'had'experienced'different'types'
of'checks'on'excessive'popula4on'growth'
•  This'includes'epidemics,'famines,'and'wars,'that'masked'the'
fundamental'problem'of'popula4ons'overstretching'their'
resource'limita4ons'(“Posi4ve'checks”).''
•  In'plus,'human'beings'differs'from'other'animals'in'that'they'
may'deliberately'reduce'fer4lity'in'face'of'a'resource'shortage'
(“preven%ve'checks”,'like'abor4on,'birth'control'and'
postponement'of'marriage)'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Model’'assump4ons'
•  Available'land'is'constant''
•  Absence'of'technical'progress''
•  Diminishing'returns'on'labor'
•  Popula4on'dynamics:'''
''''P'When'income'is'above'subsistence'level,'the'
“powerful'ins4nct'to'increase'the'species”'dominates'
''''P'When'income'falls'short'the'subsistence'level,'
preven4ve'and'posi4ve'checks'force'popula4on'to'
decline'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
Equilibrium'in'the'Malthus'model'

Z S

Y*
R
P Z = B T β N 1-β
Z0
Q

O N0 N* N

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Produc4vity'and'popula4on''
•  The'model'predicts'that'differences'in'technology'
should'give'rise'to'differences'in'popula4on'density'
but'not'in'differences'in'living'standards.''
•  Race'between'technological'progress'and'
popula4on:'what'if'technology'expanded'faster'than'
popula4on?'''
That'would'be'more'likely,'the'
B!
ŷ = − β n > 0 lower'the'output'elas4city'of'land'
B and'the'faster'the'rate'of'
technological'progress'
(move'to'manufactures)'
Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Endogenous,technical,change!!
• 
'
What'if'technological'progress'depended'on'the'size'
of'popula4on?''
If'each'person'has'a'given'probability'of'inven4ng'something,'
then,'all'else'equal,'a'larger'and'more'diverse'popula4on'
should,'in'principle,'be'capable'of'genera4ng'more'
inven4ons'per'unit'of'4me.''
For'isntance,'if:''
B! B = bN
•  Popula%on,and,technology,may,reinforcing,each,
other,
•  Ini%ally,larger,regions,should,grow,faster.''
'
Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 An'historical'experiment'
Empirical'problem:'''
•  CrossPborder'knowledge'spillovers'mi4gate'technological'differences,'
blessing'the'laggard'regions'with'the'opportunity'to'catch'up.''
How'can'we'abstract'from'this'effect?''
•  Kremer'(1993)'focused'on'a'historical'experiment.''
•  Before'the'end'of'the'last'ice'age'(about'10.000'B.C.)'ocean'levels'were'
so'low'that'humans'could'easily'migrate'across'con4nents,'including'
through'the'Bering'Strait,'which'connects'Asia'to'the'Americas.''
•  With'the'mel4ng'of'the'polar'ice'caps,'around'10,000'B.C,'land'bridges'
were'flooded.'In'consequence,'the'Old'World'(Europe,'Asia,'Africa),'the'
Americas,'Australia,'Tasmania'and'the'Flinders'Island'became'isolated'
from'each'other.'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 An'historical'experiment'
•  At'the'4me'connec4ons'were'rePestablished'P'with'the'European'explora4ons'of'the'
15th'century'P'technological'levels,'popula4on'densi4es'and'land'sizes'were'
posi4vely'correlated.''
•  Popula4on'densi4es'
–  EurasiaPAfrica'(4.85/km2)''
–  Americas'(0,36/Km2)'
–  Australia'(0.026/Km2)'
–  Tasmania'(0,018/Km2'to'0.074/Km2)'
–  Flinder'Island'(0,0/Km2).''
•  Technology:''
–  The'Old'World'had'the'highest'level'of'technological'sophis4ca4on'
–  The'Aztec'and'the'Mayan'civiliza4ons'had'already'discovered'agriculture.''
–  Australia'developed'some'artefacts'like'the'boomerang,'but'not'agriculture''
–  Tasmania'registered'technological'regression:'its'inhabitants'lost'the'ability'to'make'bone'
tools.''
–  The'Flinders'Island,'with'680'square'kilometres'of'land'and'only'500'inhabitants'ini4ally,'
lost'all'its'inhabitants'by'around'4,700'BC.''
Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 The'demographic'transi4on''
•  The'size'of'popula4on'and'per'capita'income'increased'very'lihle'un4l'
the'17th'century.'
•  'In'the'last'two'hundred'years,'however,'both'accelerated'abruptly'
(technological'progress'outpaced'popula4on'growth)'
World population and per capita gdp

7.000

Population (10^6)
6.000 Per capita GDP (1990 International Geary-Khamis dollars)

interpolation

5.000 interpolation

'At'at'certain'moment'
in'4me'popula%on, 4.000

lost,the,race'with' 3.000

technological'change.'' 2.000

1.000

0
1 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1820 1900 2000
year

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 1 1000 1500 1600 1700 1820 1900 1960 2000

29 Western European Countries

(1) GDP
Billions of 1990 International Geary-Khamis dollars 11 10 44 66 81 160 676 2,251 7,430
Growth Rate (% per annun) -0.01 0.29 0.40 0.21 0.57 1.82 2.02 3.03

(2) Population
Millions 25 25 57 74 81 133 234 326 391
Growth Rate (% per annun) 0.00 0.16 0.25 0.10 0.41 0.71 0.56 0.45

(3) Per Capita GDP

1990 International Geary-Khamis dollars 450 400 771 890 998 1,204 2,893 6,896 19,002
Growth Rate (% per annun) -0.01 0.13 0.14 0.11 0.16 1.10 1.46 2.57

Memo:
(4) Total Factor Productivity (% per annun) -0.01 0.19 0.23 0.15 0.29 1.35 1.65 2.73
(5) Population growth divided by GDP growth 0.55 0.64 0.46 0.72 0.39 0.28 0.15

Asia

(1) GDP
Billions of 1990 International Geary-Khamis dollars 78 82 161 217 230 413 557 1,736 13,762
Growth Rate (% per annun) 0.00 0.14 0.30 0.06 0.49 0.37 1.91 5.31

(2) Population
Millions 174 183 284 379 402 710 873 1,687 3,605
Growth Rate (% per annun) 0.00 0.09 0.29 0.06 0.48 0.26 1.10 1.92

(3) Per Capita GDP

1990 International Geary-Khamis dollars 449 449 568 572 571 581 638 1,029 3,817
Growth Rate (% per annun) 0.00 0.05 0.01 0.00 0.01 0.12 0.80 3.33

Memo:
(4) Total Factor Productivity (% per annun) 0.00 0.08 0.10 0.02 0.17 0.20 1.18 4.03

Miguel'Lebre'de'Freitas'
(5) Population growth divided by GDP growth 0.65
Introduc4on'to'economic'Growth'
0.98 1.03 0.97 0.69 0.58 0.36
 The,three,phases,of,economic,
development,
The'Malthusian'Regime''
P  Slow'technological'progress''
P  Popula4on'responding'posi4vely'to'per'capita'income.''
P  Most'of'technological'progress'is'matched'by'popula4on'expansion''
(Europe'before'the'Industrial'Revolu4on,'Asia'un4l'the'end'of'the'nineteen'century).''
'The'Modern'Growth'regime'
P  Steady'growth'of'per'capita'income'
P  The'rela4onship'between'popula4on'growth'and'per'capita'income'is'reversed*
(Europe'at'the'beginning'of'the'20th'century,'Asia'aier'the'third'quarter'of'the'twen4eth'century);''
The'PostPMalthusian'regime'
P  Intermediate'stage'
P  This'regime'shares'one'characteris4c'with'each'of'one'of'the'other'two'
P  The'posi4ve'(Malthusian)'rela4onship'between'income'per'capita'and'popula4on's4ll'holds'
P  But'technology'takes'a'clear'lead'in'the'race'with'popula4on,'so'per'capita'income'accelerates'as'
well.''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
Stages,of,demographic,transi%on,'

Three*stages:**
•  High'birth'rates'and'high'
death'rates.''
•  Steady'decline'of'death'
rates,'while'birth'rates'
remain'high.'' Birth rate
•  The'con4nuing'decline'in' Death rate
death'rates'is'
accompanied'by'an'even' y
faster'decline'in'birth'
rates,'so'popula4on'
expansion'decelerates.'
Population
growth rate

y
Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Why,do,birth,rates,decline,with,economic,
development?,,
•  The,missing,ins%tu%ons,theory,,
'
–  People'invest'in'the'future'and'buy'insurance'and're4rement'pensions'in'the'form'of'
children'(“asset'role”'of'Children)'
–  When'parent’s'income'increases,'the'number'of'children'increase'(Malthus)'
–  Uncertainty:'risk'averse'parents'decide'in'advance'to'rise'more'children'than'they'will'
actually'need,'just'in'case'
•  Cost'of'Child'rearing'
–  Tradi4onal'economy:'children'can'start'helping'their'parents'at'young'ages,'and'acquire'
their'skills'by'observing'what'their'parents'are'doing.'
–  Modern'Growth'Regime:'Demand'for'technical'skills'raises'the'returns'to'formal'
educa4on.'In'such'a'context,'the'rela4ve'wage'of'child'labour'is'low,'turning'inves4ng'in'
child'quan4ty'less'ahrac4ve'for'parents.''
•  Income,and,subs%tu%ng,effects,
–  Parents'derive'“intrinsic'pleasure”'in'rearing'children'(children'enter'in'the'households’'
u4lity'func4on'as'normal'goods)'
–  Economic'development'increases'the'cost'of'rearing'children'(nega4ve'subs4tu4on'effect)'
•  The'opportunity'cost'of'mother’s'4me'increases'
•  Parents'are'required'to'provide'their'children'with'expensive'educa4on.''
–  Thus,'households'will'op4mally'reduce'the'children'quan4ty'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Why'do'birth'rates'exhibit'
persistence?''
'
Death'rates'fall'faster'than'birth'rates'when'living'standards'improve.''
Why?'
'
•  Lags*in*economic*incen4ves*
The'arrival'of'a'welfare'state,'the'deepening'of'financial'markets,'the'integra4on'of'
women'in'the'labour'force,'the'raise'in'the'value'of'educa4on'tend'to'materialize'only'
aier'cri4cal'improvements'in'nutri4on'and'in'health'care'take'place.''
•  Popula4on*momentum*
Birth'rates'(number'of'newPborns'as'a'frac4on'of'total'popula4on)'are'jointly'
determined'by'fer%lity,rates,(number'of'children'per'women'in'the'reproduc4ve'age)'
and'the'structure'of'popula4on'(the'percentage'of'women'in'the'reproduc4ve'age).''
Thus,'even'if'fer4lity'rates'are'already'declining,'the'overall'birth'rates'may'remain'high'
just'because'more'and'more'you'girls'enter'in'the'reproduc4ve'age.''
•  Social*norms*
Family'level'fer4lity'decisions'are'influenced'by'the'need'to'conform'with'social'norms:'
families'desiring'to'conform'to'what'is'socially'acceptable'will'refrain'from'reducing'
fer4lity,'even'though'it'becomes'economically'convenient'to'do'so.''
Social'norms'take'4me'to'change.'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 The'great'divergence'
2,0

1,8 Western Offshoots

Growth rate of GDP per capita, 1820-2000

1,6
Western Europe

1,4

15 West Asian Countries

7 East European Countries
1,2
Latin America
16 Asian Countries

1,0
USSR

0,8
Africa

0,6

26 East Asian Countries

0,4
400 500 600 700 800 900 1.000 1.100 1.200 1.300

Per capita GDP in 1820

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 The'Great'Divergence'
•  Some'theories'relate'the'Great'Divergence'with'the'
different'4mings'that'different'countries'performed'
their'demographic'transi4ons'
•  Industrializa4on'played'a'key'role'in'these'transi4ons'
–  Industrializa4on'generates'an'increased'demand'for'skilled'
labour,'raising'the'returns'to'educa4on'and'leading'parents'
to'alter'their'choices'over'their'children'educa4on.''
–  In'response,'socie4es'press'their'governments'to'introduce'
universal'schooling'
–  As'educa4onal'reforms'induce'more'children'to'engage'in'
formal'educa4onal,'fer4lity'rates'decline.''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Agriculture'and'industrializa4on'
18th'century'England:'''
Agriculture'revolu4on'eased' Y = AN Y
the'industrial'revolu4on.'
–  Higher'produc4vity'
Z
(
Z = BN Z = B 1− N Y )
released'workers'
–  Market'for'industrial' ( )
U = ln Z − Z + lnY
products''
–  Engel’s'Law' 1" Z %
–  Higher'employment'in' N Y = $1− '
manufactures'generated'
F 2# B&
produc4vity'gains'(division' E

of'labour,'learning'by'
doing)'

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
Y
Trading'Popula4on'for'Produc4vity'
Z Nineteen'century:'
expansion'of'interna4onal'
trade''
G
–  England'specialized'in'
industrial'goods'because'it'
F had'an'agricultural'
revolu4on'before'
–  Other'countries'specialized'
in'agriculture,'delaying'the'
demographic'transi4on'
Y
–  Dynamic'effects'reinforced'
the'specializa4on'paherns''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Summary'
•  The'Law'of'Diminishing'Returns'(LDR)'plays'an'important'role'in'the'
theory'of'economic'growth.''
•  The'Malthus'model'puts'it'in'a'simple'manner:'in'this'model,'a'growing'
labour'force'leads'to'a'more'intensive'use'of'land'and'thereby'to'a'decline'
in'labour'produc4vity'and'wages.'At'the'moment'wages'fall'below'a'given'
subsistence'level,'both'popula4on'and'output'stop'growing.''
•  The'Malthus'predic4on'that'technological'gains'should'translate'into'
higher'popula4on'densi4es'rather'than'to'higher'leaving'standards'
describes'prehy'well'the'history'of'human'kind'for'a'long'period'in'the'
prePindustrial'era.''
•  Along'the'centuries,'however,'technology'started'winning'the'race'against'
popula4on:'popula4on'expanded'with'per'capita'income,'but'not'the'
enough'to'avoid'the'increase'in'per'capita'income.'This'pahern'is'labeled'
the'postPMalthusian'regime.''
•  In'the'Modern'Growth'regime,'the'rela4onship'between'income'and'
popula4on'growth'is'reversed.'''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Summary'
•  The'change'in'human'antudes'toward'fer4lity'along'the'process'of'
economic'development'is'labeled'“Demographic'Transi4on”.''
•  To'understand'this'phenomenon'one'needs'to'look'at'the'
microeconomics'of'fer4lity.''
•  In'the'Malthusian'regime,'fer4lity'rates'tend'to'be'high,'because'
children'play'an'“asset'role”'and'because'of'risk'aversion.'In'the'
Modern'growth'regime,'formal'ins4tu4ons'dominate'children'in'
their'asset'role.''
•  In'modern'economies,'the'cost'of'rearing'children'and'preparing'
them'to'enter'in'the'labor'force'is'higher'than'in'tradi4onal'
socie4es.'Thus,'parents’'choices'move'from'“quan4ty”'to'“quality”.'
•  Technological'change'played'a'key'role'in'the'demographic'
transi4on.''''
•  The'fall'in'birth'rates'entails'some'iner4a,'either'because'of'social'
norms'and'because'of'the'“popula4on'momentum”.''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'
 Summary'
•  The'rising'crossPcountry'income'dispari4es'along'the'last'two'centers'is'known'as'
“The'Great'Divergence”.''
•  Some'authors'argued'that'the'great'divergence'was'the'result'of'an'interac4on'
between'globaliza4on,'industrializa4on'and'antudes'towards'fer4lity.''
•  England'achieved'an'agriculture'revolu4on'when'it'was'basically'a'closed'
economy.'In'such'a'context,'the'Engel’'Law'implied'an'expansion'of'employment'
in'manufactures,'triggering'investments'in'educa4on'and'faster'technological'
progress.''
•  In'the'XIX'century,'at'the'4me'most'countries'opened'to'interna4onal'trade,'
England'and'other'western'countries'had'already'compara4ve'advantages'in'
manufactures.''''
•  Countries'with'compara4ve'advantages'in'agriculture'remained'basically'in'the'
Malthusian'regime,'with'technological'improvements'matched'by'popula4on'
expansions.''
•  In'countries'with'compara4ve'advantages'in'manufactures,'socie4es'felt'the'
pressure'to'switch'from'child'quan4ty'to'child'quality,'inves4ng'more'in'educa4on'
and'achieving'faster'technological'change,'in'a'virtuous'cycle.''
•  This'story'points'to'a'dis4nc4on'between'sta4c'efficiency'and'dynamic'efficiency.''

Miguel'Lebre'de'Freitas' Introduc4on'to'economic'Growth'