Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics
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561Summary
Summary
Sustainable development refers to a process for providing for the needs of the
present generation (particularly those in poverty) without compromising the ability
of future generations to meet their own needs.
Market imperfections frequently make sustainable development less likely.
Intergenerational externalities such as climate modification impose excessive costs
on future generations. Free access to biological common property resources can
lead to excessive exploitation and even extinction of the species.
Even efficient markets do not necessarily produce sustainable development.
Restoring efficiency is desirable and helpful but can be insufficient as a means for
producing sustainable welfare levels. While in principle dynamically efficient
allocations can produce extraction profiles for depletable resources that are
compatible with the interests of future generations, in practice this is not necessar-
ily the case. When trade is used as part of the development strategy, it must be used
carefully. The effects of trade on the environment are neither universally benign
nor universally detrimental. Context matters.
We have examined a series of indicators that attempt to shed light on the degree
to which current national practices are sustainable. Though all of these indicators
are both incomplete and flawed, they all convey some important insights.
Because it is based on the weak sustainability criterion, which is limited in scope,
the adjusted net savings indicator is not particularly helpful in validating the
practices in countries that are identified by this indicator as being sustainable. Yet it
can be helpful identifying countries that are not sustainable (as well as the sources
of their unsustainability), since any failure to pass this weak test sends a powerful
signal of serious problems. The fact that many of the countries that fail this test are
low-income countries reminds us that poverty can be both a cause and an effect of
unsustainability.
The Genuine Progress Indicator provides a helpful reminder that increases in
traditional accounting measures, which are uniformly trumpeted in the press as
evidence of “progress,” may not represent an increase in well-being at all.
Traditional accounting techniques measure economic activity, not well-being.
The Ecological Footprint provides helpful reminders that scale does matter and
that the earth on which we all depend is ultimately limited in its ability to fulfill our
unlimited wants. Though the Ecological Footprint finding that we have already
exceeded the earth’s carrying capacity is controversial, it does usefully lay to rest the
naïve view that our ability to consume is limitless and emphasize that we had better
start thinking about how to stay within those limits. The Ecological Footprint is
also helpful in pointing out that affluence is fully as big a challenge to sustainability
as poverty.
The Human Development Index reminds us that the relationship between
income growth and the well-being of the poorest citizens of the world is far from a
sure thing, in contrast to what some would have us believe. While income growth
can provide a means for empowerment for the poor, it can only do so when
accompanied by appropriate policy measures, such as ensuring universal health
care and education and limiting the perverse effects of corruption. The Index also
562 Chapter 20 The Quest for Sustainable Development
identifies a number of low-income countries that have made great strides in ensur-
ing that the fruits of development do reach the poor.
The outlook for the developing nations is mixed at best. Solving many of their
future environmental problems will require raising standards of living and dealing
with population growth. However, following the path of development pioneered
by the industrialized nations is probably not possible without triggering severe
global environmental problems; the solution would become the problem. New
forms of development will be necessary.
New sustainable forms of development are possible, but they will not automati-
cally be adopted. Economic incentive policies can facilitate the transition from
unsustainable to sustainable activities. The search for solutions must recognize
that market forces are extremely powerful. Attempts that ignore those forces are
probably doomed to failure. Nonetheless, it is possible to harness those forces and
channel them in directions that enhance the possibilities of sustainable outcomes.
To take these steps will require thinking and acting in somewhat unconventional
ways. Whether the world community is equal to the task remains to be seen.
Discussion Questions
1. Consider a possible mechanism for controlling population. According to an
idea first put forth by Kenneth Boulding (1964) each individual would
be given the right to produce one (and only one!) child. Because this scheme
over a generation allows each member of the current population to replace
himself or herself, births would necessarily equal deaths and population
stability would be achieved.
This scheme would award each person a certificate, entitling the holder to
have one child. Couples could pool their certificates to have two. Every time
a child was born, a certificate would be surrendered. Failure to produce a
certificate would cause the child to be put up for adoption. Certificates would
be fully transferable.
Is this a good idea? What are its advantages and disadvantages? Would it
be appropriate to implement this policy now in the United States? For those
who believe that it would, what are the crucial reasons? For those who believe
it is not appropriate, are there any circumstances in any countries where it
might be appropriate? Why or why not?
2. “Every molecule of a nonrenewable resource used today precludes its use by
future generations. Therefore, the only morally defensible policy for any
generation is to use only renewable resources.” Discuss.
3. “Future generations can cast neither votes in current elections nor dollars in
current market decisions. Therefore, it should not come as a surprise to anyone
that the interests in future generations are ignored in a market economy.”
Discuss.
4. “Trade simply represents economic imperialism where one country exploits
another. The environment is the inevitable victim.” Discuss.
563Further Reading
Self-Test Exercise
1. “With a global economy, the only way to achieve cost-effective control of
greenhouse gases is to assure that every country imposes the same universal
set of emissions standards.” Discuss.
Further Reading
Copeland, Brain R., and M. Scott Taylor. “Trade, Growth, and the Environment,” Journal of
Economic Literature Vol. 42 (March 2004): 7–71. An excellent survey of the lessons to be
derived from the theory and empirical work focusing on the relationship between trade
and the environment.
Deacon, Robert T., and Catherine S. Norman. “Does the Environmental Kuznets Curve
Describe How Individual Countries Behave?” Land Economics Vol. 82, No. 2 (2006):
291–315. Examining time series data within countries, the authors find weak evidence of
the existence of a Kuznets curve for SO
2
in wealthier countries, but no evidence for a
Kuznets curve for other pollutants and for poorer countries.
De Soysa, Indra, and Eric Neumayer. “False Prophet, or Genuine Savior? Assessing the
Effects of Economic Openness on Sustainable Development, 1980–1999,” International
Organization Vol. 59, No. 3 (2005): 731–772. Estimates the effects of a dependence on
trade, and foreign direct investment on sustainability as measured by the genuine saving
rate. They find openness enhances sustainability.
Fischer, Carolyn. “Does Trade Help or Hinder the Conservation of Natural Resources?”
Review of Environmental Economics and Policy Vol. 4, No. 1 (2010): 103–121. This article
reviews and takes stock of the lessons from the recent economics literature on the links
between trade and the conservation of natural resources.
Layard, R. Happiness: Lessons from a New Science (New York: Penguin Press, 2005). Using
integrated insights from psychology, economics, neuroscience, and sociology, a distin-
guished British economist explores the sources of human happiness.
Pearce, David, Anil Markandya, and Edward B. Barbier. Blueprint for a Green Economy
(London: Earthscan, 2000). Seeks to answer the question, “If we accept sustainable
development as a working idea, what does it mean for the way we manage a modern
economy?”
Pezzey, John C. V., and Michael A. Toman. “Progress and Problems in the Economics of
Sustainability,” in Tom Tietenberg and Henk Folmer, eds. The International Yearbook of
Environmental and Resource Economics: A Survey of Current Issues (Cheltenham, UK:
Edward Elgar, 2002). A comprehensive review of what we have learned from economic
analysis about the nature and consequences of sustainability by two major contributors to
the literature.
Additional References and Historically Significant References are available on this book’s
Companion Website: http://www.pearsonhighered.com/tietenberg/
564
21
21
Population and Development
We will not achieve the Millennium Development Goals (MDGs)
to eradicate extreme poverty and hunger, advance gender equality,
improve maternal health, reduce child mortality, ensure universal
education, combat HIV/AIDS, and protect the environment unless
more attention and resources are devoted to population and reproductive
health. This is particularly true in the poorest nations, where there
are high rates of fertility and mortality, rapid population growth, and
high unmet need for family planning.
—Thoraya Ahmed Obaid, Executive Director, UNFPA, Demographics and
Socio-Economic Development (2006)
Introduction
In 2005 the world population stood at 6.45 billion people, projected to grow to
8.13 billion by 2030. In Chapter 1 we examined two strikingly different views of
what the future holds for the world economic system. At the heart of those
differences lie divergent views of the world population problem. One view sees
population growth as continuing relentlessly, making sustainable development
much more difficult. The other view foresees human ingenuity erasing those
limits as it has in the past.
These views are symptomatic of a debate that has deep historical roots. Thomas
Malthus, a late eighteenth-century and early nineteenth-century classical econo-
mist, concluded that population growth posed a trap for nations seeking to develop.
Temporary increases in income were seen as triggering increases in population until
the land could no longer supply adequate food. Cornell University Professor David
Pimentel, an emeritus professor from Cornell, has brought this argument into the
twentieth century by suggesting that the optimum global population, defined as the
largest population that could be supported sustainably in relative prosperity, is about
two billion people. Since this is approximately one-third of the current population,
his analysis suggests the need for considerable reductions in current population
levels, not merely reductions in growth.
565Historical Perspective
Contrasting views are also held by representatives of Third World countries and
some prominent population economists. The late economist Julian Simon
maintained that not only have the pessimists overstated the seriousness of the
problem, but also that they fail to recognize that population growth in many of the
developing countries is desirable. Clearly, no consensus exists.
In this chapter we examine the manner in which population affects, and is
affected by, the development process, as well as the microeconomic issues dealing
with economic determinants of fertility. This economic perspective not only
provides one basis for understanding the causes and consequences of population
growth, but it also provides a policy approach for controlling population.
Historical Perspective
World Population Growth
It has been estimated that at the beginning of the Common Era, world population
stood at about 250,000,000 people and was growing at 0.04 percent per year (not 4
percent!). When the world’s population passed six billion, it was growing at an
annual rate around 1.5 percent per year. Since the beginning of time, the popula-
tion has grown to over six billion people; at a 1.5 percent growth rate, the next six
billion would take only 50 years.
In recent years, the average rate of population growth has declined (see Table 21.1).
This slowdown has been experienced in developed and less developed countries,
although rates remain higher in the less developed countries. The World Fertility
Survey, a multinational survey of some 400,000 women in 61 countries, found several
apparent causes for this slowdown, including increased use of contraception, a grow-
ing preference for fewer children, and later marriages.
Although the trend toward falling birthrates is pervasive, the fact remains that
most developing countries still have, and can be expected to have in the future, sub-
stantial increases in their populations. Some 98 percent of the population growth
between 1998 and 2025 is expected to occur in the poorer countries.
For example, in 2009 Niger had a population growth rate of 3.9 percent, while
in the same year population growth rates of less than 1 percent were common in
Europe. Germany’s population growth rate was –0.3 percent.
Population Growth in the United States
Population growth in the United States has followed the general declining pattern
of most of the developed world, although in most periods American growth rates
have exceeded the average for Europe by a substantial margin. The reductions in
American population growth rates have been due primarily to declines in the
birthrate, which fell from a high of 55.2 live births per 1,000 population in 1820 to
a then record low of 13.9 live births per 1,000 in 2002. In 2010, U.S. birthrate was
even lower—13.83 births per 1,000 population.
566 Chapter 21 Population and Development
TABLE 21.1 Average Annual Rate of Population Growth by Region and Development Category:
1950–2050 (in percent)
Region
1950–
1960
1960–
1970
1970–
1980
1980–
1990
1990–
2000
2000–
2010
2010–
2025
2025–
2050
World
1.7 2.0 1.8 1.7 1.4 1.1 0.9 0.6
Less Developed Countries 2.0 2.4 2.2 2.0 1.7 1.3 1.1 0.7
More Developed Countries 1.2 1.0 0.7 0.6 0.4 0.3 0.1 (Z)
Africa
2.2 2.4 2.7 2.8 2.5 2.0 1.6 1.4
Sub-Saharan Africa 2.1 2.5 2.7 2.8 2.6 2.0 1.7 1.6
North Africa 2.4 2.4 2.5 2.7 2.1 1.7 1.3 0.8
Near East
2.7 2.6 3.0 2.9 2.3 2.2 1.9 1.4
Asia
1.7 2.2 2.0 1.8 1.4 1.1 0.9 0.4
Latin America and the
Caribbean
2.7 2.7 2.4 2.0 1.7 1.3 1.0 0.5
Europe and the New
Independent States
1.1 0.9 0.7 0.5 0.2 0.1 (Z) –0.2
Western Europe 0.7 0.8 0.4 0.3 0.3 0.2 (Z) –0.3
Eastern Europe 1.2 0.8 0.8 0.4 –0.1 –0.1 –0.2 –0.5
New Independent States 1.7 1.3 0.9 0.8 0.1 0.1 0.2 (Z)
North America
1.8 1.3 1.1 1.0 1.2 0.9 0.8 0.7
Oceania excluding China
2.3 2.1 1.6 1.6 1.5 1.2 0.9 0.5
World
1.8 1.9 1.8 1.8 1.5 1.3 1.0 0.7
Less Developed Countries 2.2 2.4 2.4 2.3 1.9 1.6 1.3 0.9
Asia
1.9 2.2 2.2 2.0 1.7 1.4 1.1 0.6
Less Developed Countries 2.0 2.3 2.2 2.1 1.8 1.5 1.1 0.7
(Z) Between –0.05 and +0.05 percent.
Note
: Reference to China encompasses China, Hong Kong S.A.R., Macau S.A.R., and Taiwan. Direct access to this table and the
International Data Base is available at www.census.gov/ipc/www.
Source
: U.S. Census Bureau, International Programs Center, International Data Base. Internet Release Date: March 22, 2004.
Birthrates, however, provide a rather crude measure of the underlying
population trends, primarily because they do not account for age structure. To
understand the effect of age structure, let’s separate the birthrate experience into
two components: (1) the number of persons in the childbearing years and (2) the
number of children those persons are bearing.
To quantify the second of these components, the Census Bureau uses a concept
known as the total fertility rate, which is the number of live births an average woman
has in her lifetime if, at each year of age, she experiences the average birthrates
occurring in the general population of similarly aged women. The rates vary
567Historical Perspective
considerably across countries. In 2008, world fertility rates averaged 2.56 live births
per woman. While Niger’s total fertility rate was 7.68, Italy’s was 1.32.
Total fertility rates can be used to determine what level of fertility would, if
continued, lead to a stationary population. A stationary population is one in which
age- and sex-specific fertility rates yield a birthrate that is constant and equal to the
death rate, so the growth rate is zero. The level of the total fertility rate that is
compatible with a stationary population is called the replacement rate. Rates higher
than the replacement rate would lead to population growth, while rates lower
would lead to population declines. Once the replacement fertility rate is reached,
the World Bank estimates that it takes approximately 25 years before the
population stabilizes, due to the large numbers of families in the childbearing years.
As the age structure reaches its older equilibrium, the growth rate declines until a
stationary population is attained.
In the United States, the replacement rate is 2.11. The two children replace the
mother and her mate, while the extra 0.11 is to compensate for those women who
do not survive the childbearing years and because slightly more than 50 percent of
births are males. The U.S. total fertility rate dropped below the replacement rate in
1972 and has remained below it ever since (see Figure 21.1). In 2010 (the latest year
for which data were available), the rate stood at 2.06.
4
3.5
3
2.5
2
1.5
1
0.5
0
Replacement Rate
Total Fertility Rates
Year
1940
1942
1944
1946
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
FIGURE 21.1 U.S. Total Fertility Rates: 1940–2004
Note
: Births before 1960 are adjusted for underregistration.
Sources
:
Vital Statistics of the United States
Vol. 1 (2002); and National Vital Statistics System, available on the
Web at http://www.cdc.gov/nchs/datawh/vitalstats/vitalstatsbirths.htm.
568 Chapter 21 Population and Development
Two questions arise when we think about how population growth affects
sustainability: (1) What is the relationship between population growth and
economic development? and (2) How can the rate of population growth be altered
when alteration is appropriate? The first question lays the groundwork for
considering the effect of population growth on quality of life, including the effects
of a stationary population. The second allows us to consider public policies geared
toward manipulating the rate of population growth when desirable.
Effects of Population Growth on Economic
Development
A number of questions guide our inquiry. Does population growth enhance or
inhibit the opportunities of a country’s citizens? Does the answer depend on the
stage of development? Given that several countries are now entering a period
of declining population growth, what are the possible effects of this decline on
economic growth?
Population growth affects economic growth and, as long as each person con-
tributes something, those effects generally are positively correlated. As long as their
marginal product is positive, additional people mean additional output. Since this is
not a very restrictive condition, it should usually hold true.
However, the existence of a positive marginal product is not a very appropriate
test of the desirability of population growth! Perhaps a better one is to ask
whether population growth positively affects the average citizen. Whenever the
marginal product of an additional person is lower than the average product,
adding more persons simply reduces the welfare of the average citizen. Why?
In the range of marginal productivities between zero and the average product,
economic growth measured in aggregate terms would increase, but measured in
per capita terms, would decrease. Similarly, there is a range of marginal productiv-
ities—those greater than the average product—where economic growth increases
regardless of whether it is measured in aggregate or per capita terms. Whether or
not the material status of the average citizen is improved by population growth be-
comes a question of whether the marginal product of additional people is higher or
lower than the average product.
To facilitate our examination of the population-related determinants of eco-
nomic development, let’s examine a rather simple definition of output:
where O is the output level, X is the output per worker, and L is the number of
workers. This equation can be expressed in per capita terms by dividing both sides
by population, denoted as P:
O
P
=
L
P
#
X
O = L
#
X
569Effects of Population Growth on Economic Development
This equation now states that output per capita is determined by the product of
two factors: the share of the population that is in the labor force and the output per
worker. Each of these two factors provides a channel through which population
growth affects economic growth.
The most direct effect of population growth on the percentage of the population
employed, the age structure effect, results from induced changes in the age
distribution. Suppose that we were to compare two populations, one rapidly
growing and one slowly growing. The one with the rapid growth would contain a
much larger percentage of younger persons (see Figure 21.2).
Due to its slow growth, the U.S. population is, in general, older than the
population in Mexico. Approximately 45.1 percent of Mexico’s population is
14 years of age or younger; the comparable figure for the United States is
21.4 percent. This is reinforced at the other end of the age structure, where
some 12.4 percent of the U.S. population is 65 or older, compared with only
3.8 percent in Mexico.
These differences in the age structure have mixed effects on the percentage of
the labor force available to be employed. The abundance of youth in a rapidly
growing population creates a large supply of people too young to work, a situation
referred to as the youth effect. On the other hand, a country characterized by slow
population growth has a rather larger percentage of persons who have reached, or
are past, the traditional retirement age of 65, a situation referred to as the
retirement effect. Some developing countries are experiencing both effects
simultaneously as better public health policies reduce death rates while birthrates
remain high. How do the youth and retirement effects interact to determine the
percentage of the population in the labor force? Does the youth effect dominate
the retirement effect?
Examine the percentage of population in the prime working ages, 15 through
64. As Figure 21.2 shows, this percentage is much higher for the United States. A
larger percentage of the population is in the labor force in the United States than in
Mexico. For Mexico, the youth effect dominates.
70 60 50 40 30 20 10 zero 10 20 30 40 50 60 70
45.1
21.4
51.1 66.2
3.8 12.4
Percentage of Total Population,
Mexico
Percentage of Total Population,
United States
65+
15 – 64
<15
Age
65+
15 – 64
<15
Age
66.2
FIGURE 21.2 Age Structure of Two Populations in 2000
Source
: World Resources Institute,
World Resources: 1998–99
(New York: Oxford University Press, 1999):
pp. 246–247.
570 Chapter 21 Population and Development
This dominance of the youth effect generalizes to other countries. High popula-
tion growth tends to retard per capita economic growth by decreasing the percent-
age of the population in the labor force.
Demographic factors also apparently affect productivity by affecting the age
structure of the labor force. Using a large panel of countries, economist James
Feyrer (2007) found that changes in workforce demographics have a strong and sig-
nificant correlation with the growth rate of productivity. Over time, increases in the
proportion of workers between the ages of 40 and 49 were found to be associated
with higher productivity growth. Furthermore, low productivity levels in poor
countries may be associated with workforces that are very young. Feyrer found that
roughly one-quarter of the persistent differences between the OECD (industrial-
ized) and low-income nations may be related to different demographic structures.
Rapid growth also affects the percentage available to be employed through the
female availability effect. With a slower growth rate and fewer children to care for,
more women are available to join the labor force. Both the dominance of the youth
effect (over the retirement effect) and the female availability effect suggest that
rapid population growth reduces the percentage of the population in the labor
force, which, in turn, has a depressing effect on economic growth per capita.
How about possible relationships between population growth and the second
factor, the amount of output produced by the average worker? The most common
way to enhance productivity is through the accumulation of capital. As the capital
stock is augmented (e.g., through the introduction of assembly lines or production
machinery), workers become more productive. Is there any connection between
population growth and capital accumulation?
One main connection involves the link between savings and capital accumula-
tion. The availability of savings constrains the level of additions to the capital stock.
Availability of savings, in turn, is affected in part by the age structure of the popu-
lation. Older populations are presumed to save more because less is spent directly
on the care and nurturing of children. Therefore, all other things being equal, so-
cieties with rapidly growing populations could be expected to save proportionately
less. This lowered availability of savings would lead to lower amounts of capital
stock augmentation and lower productivity per worker.
Apparently the magnitude of the effect of demographic change on savings in
the 1960s and 1970s was small, but more recent studies suggest the situation has
changed. A large study by Kelley and Schmidt (1994) found that population
growth and demographic dependency exerted a sizable negative impact on savings
in the 1980s.
A final model suggesting a negative effect of population growth on economic
growth involves the presence of some fixed essential factor for which limited
substitution possibilities exist (land or raw materials, for example). In this case the
law of diminishing marginal productivity applies. This law states that in the presence
of a fixed factor (land), successively larger additions of a variable factor (labor) will
eventually lead to a decline in the marginal productivity of the variable factor. It
suggests that in the presence of fixed factors, successive increases in labor will drive
the marginal product down. When it falls below the average product, per capita
income will decline with further increases in the population.