Economics 101: Gulf states can harness population growth to their advantage

The issue of the sustainability is incredibly complex

Passengers board an overcrowded train near a railway station at Loni town in the northern state of Uttar Pradesh, India, February 24, 2016. India's federal-run railways will have to depend on more government support and borrowing to fix their finances in its budget on Thursday, with New Delhi reluctant to unveil steep fare hikes ahead of key state elections, officials said. REUTERS/Anindito Mukherjee - D1AESOWIOAAA
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Many observers blame global problems, such as climate change and violent conflict, on population growth, arguing that there is a ceiling to what the planet can provide to humans—a ceiling brazenly disregarded by families when they plan to have more children.

There are growing calls for some sort of population control system to ensure humans do not sow the seeds of their own destruction. In the context of the Arabian Gulf countries, where the young account for a larger-than-average percentage of the population compared to advanced economies, there is the added concern of whether the economy can create jobs at a sufficiently high rate. Are such fears well-founded?

The issue of the sustainability of population growth is incredibly complex, but two points can be made immediately.

First, these fears are not new, and they date back to the 18th century demographer Thomas Malthus, at least. Since then,  groups of scientists have periodically expressed their concern that humans have pushed their luck too far.

Second, while intellectually unsatisfying, we must concede that we simply don't know what will happen, due to the fundamentally unpredictable nature of technological progress. When Malthus was alerting us to the potential problems with population growth, many families worked full-time on a small plot of land growing food, which they would eat to avoid starvation. Nobody at that point would have predicted that modern farms operated by a handful of people could feed thousands. Similarly, no amount of Ted talks or Davos gatherings will help us definitely determine what the next big innovation will be.

None of this implies the analysis is pointless, however. The purpose of this article is to draw attention to an important positive effect of population growth that is often ignored by those who hold a pessimistic outlook: historically, higher rates of population growth are associated with higher levels of technological progress.

Michael Kremer, a Harvard economist, drew attention to this phenomenon in a 1993 paper. The end of the ice age around 10,000 BC witnessed the melting of ice caps, and the flooding of land bridges between masses that we today see as separate: Europe (the Old World), the Americas, Australia, Tasmania, and Flinders Island. At the point of segregation, each of these land masses had a very different population  -- I listed them in descending order -- and by the time Columbus reached the Americans around 1500, the technological ranking for the five land masses mimicked the population ranking. What might account for this relationship?

One channel is increasing returns: some important technological advances have a large fixed cost that can only be justified commercially if there is a large enough society to benefit from it. For example, the American-Russian space race involved two of the world’s most populous countries.


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Potentially more important is the “genius” effect combined with knowledge being non-rival. Economists describe most commodities as being “rival,” meaning that if one person consumes it, that same unit cannot be consumed by someone else: think of apples or a seat on an airplane.

However, some goods are “non-rival,” meaning that my consumption of the unit does not lessen the amount available for others. Good examples include a beautiful sunset, or radio waves. In many contexts, knowledge and technology are considered non-rival: when I use calculus to solve an engineering problem, it can still be freely used by all others; or if I design a green-efficient building, that same schematic can be used freely by others, too.

The genius effect reflects the fact that the higher  the population, the more geniuses it will yield: just imagine that there is a one-in-a-million likelihood of a baby being a genius, so larger populations will produce more geniuses if you follow the law of averages. Combining this with the knowledge being non-rival means that larger populations produce more geniuses, who make more breakthrough discoveries, that then spills over to the rest of the population, and can be built upon by the next round of geniuses.

A recent study by Francois Derrien (HEC Paris), Ambrus Kecskes, and Phuong-Anh Nguyen (both York University) builds upon Kremer’s argument. They carefully study population data to surmise that younger populations are also more innovative: the young are often more creative and motivated, and they possess the mental agility to think outside the box, as cognitive ability declines with age, leading most old people to get stuck in their ways.

In this sense, the Gulf countries need to think long and hard about how to exploit the wonderful opportunity afforded to them by their young populations, when many of the world’s traditional economic powerhouses are aging.

As mentioned above, it is impossible to state with any confidence that the positive relationship between technological progress and population growth means that we do not need population controls at present, due to the inherent unpredictability of scientific advancement. However, those who are adamant that the human race is destroying itself, should at least be forced to acknowledge that technological progress is not to be taken for granted, and is in fact sometimes the product of population growth.

Omar Al-Ubaydli (@omareconomics) is a researcher at Derasat, Bahrain.