Posted on | February 28, 2012 by Lucia Muchova |
Recently, the HSBC Global Research department released a report forecasting the trends in world economic development for the next 40 years. Countries with growing population and improving rule of law, education, health and governance will fare much better than those with shrinking population and already high per capita income levels.
Unsurprisingly, by 2050, China is predicted to overtake the US when measured by the size of its economy in constant US dollars. The so called “emerging markets” such India, China and Brazil are going to continue fuelling the global economic growth. Perhaps more unexpectedly, countries like Peru, Nigeria and the Philippines are going to join them thanks to favorable demographics. Peru will climb up by 20 places, Nigeria by 9 and the Philippines by 27 on the list of the world’s largest economies.
In 2050 there will be almost as many people in Nigeria as in the United States, and Ethiopia will have twice as many people as projected in the UK or Germany. The population of many African countries will double. Pakistan will have the sixth-largest population in the world. Even if some of these countries remain relatively poor on a per-capita basis, they could see a dramatic increase in the size of their economies thanks to population growth.
By contrast, the Japanese working population looks set to contract by 37% and the Russian one by 31%. The eurozone faces similar problems with working population declines of 29% in Germany, 24% in Portugal, 23% in Italy and 11% in Spain, adding a whole new perspective to the sovereign debt crisis.
For most countries, rise in total GDP figures will go hand in hand with increase in per capita GDP. This means that the positive effect of population on GDP growth will be greater than the negative effect of increasing population on GDP per capita. In other words, even though more people will want to share the pie, the pie itself will be bigger, allowing people to take bigger slices than before.
The study assumes that policy makers continue to make progress in addressing economic inefficiencies; that countries avoid armed conflict and remain open to trade and capital flows. The model does not aim to capture cyclical fluctuations or economic and political risk.
Nonetheless, the structure behind it offers important insight into the drivers of growth and prosperity. Undeniably, within a framework of fundamentals such as rule of law, democracy and education, population growth is crucial to provide a large enough work force to drive economic growth. This is particularly the case for countries with low per capita income that can benefit from “copy and paste” growth to catch up with the developed world.
Aware of these factors, policies aimed at restricting population growth can prove harmful in the long run, depriving countries of a significant demographic advantage. Instead of population control, more support should be provided in the area of education, health and technological innovation to increase human capabilities and achieve greater productivity.