Theory of Demographic Transition & Fertility | Population Growth | Economics

A significant issue relating to population growth is what determines fertility rate on which birth rate of a country depends. The second important issue is how economic development affects birth rate and death rate and thereby determines population growth. This issue is dealt with in the theory of demographic transition. The third important issue is how population growth affects economic development, especially in developing countries. While population growth by causing increase in workforce helped economic growth in the presently developed countries, in case of labour-surplus developing countries such as India far from helping economic development retards it.

The other important issue is how population growth is responsible for the increase in the magnitude of poverty in developing countries and also causes environmental degradation. The last issue is what measures should be adopted in developing countries to check population growth rate so that economic development be speeded up. An important aspect of population, especially in case of India, is the beneficial effect of change in composition of population toward the higher ratio of young population to the total population which is described as population dividend.

Theory of Demographic Transition:

The effect of economic development on the population growth of the countries has been explained with the theory of demographic transition. The theory of demographic transition has been formulated on the basis of experience gained in the historical development of the present-day developed countries. According to this theory of demographic transition as put forward by Karl Sax economic growth has to pass through four stages.

These four stages in the demographic transition are as follows:

Stage I:

In stage I, birth rate is accompanied by high but varying death rate. As a result, the population of a country in this stage either remains constant or grows slowly.

Stage II:

In stage II, death rate steeply declines while birth rate remains more or less at a high level which leads to rapid growth in population. This rapid growth in population above 1.5% per year has been called population explosion.

Stage III:

In the third stage the birth rates start falling but the death rates level down at low level or show further slowing down. With this the growth of population slows down.

Stage IV:

In stage IV birth rates and death rates balance at low levels with the result that population remains more or less constant.

It is worth noting that various stages of demographic transition are associated with the various stages of economic growth. The first stage is regarded as a feature of agrarian underdeveloped economies, the second of the take-off period of economic growth and third of the developed countries in their mature stage of economic growth.

Explanations of these stages are as follows:

Stage I – High Birth and Death Rates:

The stage I is regarded as characteristic of pre-industrial agrarian economies which are primitive in nature. As said above, both birth rate and death rate are at high levels in the primitive pre-industrial economies. Birth rate is high because of the practice of universal early marriage, ignorance about knowledge of family planning techniques and lack of motivation to adopt them, deep-rooted social beliefs, customs and religious attitudes which are conducive to enlargement of the size of the families and involve preference for more children.

Besides, in these primitive agrarian economies, children are considered as an economic asset because they start working at an early age and supplement to family income. Moreover, more children are regarded as a sort of insurance against old age. To quote Coale and Hoover, the prominent exponents of the theory of demographic transition, “Children contribute at an early age and are traditional sources of security in the old age of parents. The prevalent high death rates, especially in infancy, imply that such security can be attained only when many children are born.”

In this stage, the death rates are high but fluctuating. The high death rate is caused by poor diet, bad sanitary conditions, absence of medical facilities. In other words, due to low per capita income, standard of living is very low and this causes a high death rate. In this stage rate of growth of population is nil or low because high birth rate is matched by high death rate. No doubt, this is a stage of high growth potential because of low population growth rate. But due to other several economic and non-economic factors, actual growth rate is very low.

Stage II – Low Death Rates, High Birth Rates:

This stage of demographic transition is regarded as characteristic of the take-off period of economic growth, during which population grows at a very rapid rate. As the economy develops and its per capita income rises, there takes place an improvement in the standards of living of the people. This rise in standard of living enables the people to improve their diets which increase their resistance to diseases. Moreover, as a result of the improvement in the transport system, food supply becomes more abundant and regular. With the rising incomes, there is greater availability of medical facilities and sanitary conditions also improve.

All these cause death rate to decline, whereas birth rate remains at almost the previous high level. As a result of this sharp decline in death rate, with birth rate remaining at a high level, population grows rapidly. Therefore, this stage has been called the stage of population explosion. The currently developed countries have already crossed this stage but many presently developing countries like India are said to be passing through this stage.

Stage III – Low Birth and Death Rates:

Stage III is considered as characteristic of currently developed countries in their present mature stage of economic growth in which most of the Western European countries as well as U.S.A. and Japan find themselves. In this stage, birth rate also starts declining and reaches a low level while the death rate has already reached a low level.

Consequently, the two once again balance each other but now at a low level rather than at a high level. As a result, population grows at a slow rate. As the economy develops and makes progress in industrialisation, there takes place a shift of population from the rural to the urban areas. This is generally called structural transformation of which industrialisation and urbanisation are important features.

With the rise in incomes, as a result of the growth of urbanisation and industrialisation, standard of living of the people rises this has a favourable effect on the birth rate. In order to maintain their high standards of living and also to raise them further, people deliberately try to limit the size of their families by using contraceptive devices. In the urban setting children are regarded as more of a burden than an economic asset.

Commenting on the fall in birth rate as a result of industrialisation and urbanisation, Coale and Hoover write, “The development of economic roles for women outside the home tends to decrease the possibility of economic advantages of a large family. One of the features of economic development is typically increasing urbanisation, and children are usually more of a burden and less of an asset in an urban setting than in a rural one.” Thus, with birth rate and death rate at almost low level, the population grows at a low rate but the economy has already reached a level of high per capita income.

Thus, the third stage is characterised by narrowing down the difference between the birth and the death rates at low levels. The birth rates decline low enough and establish a parallel with the already lowly settled death rates. Small families and low mortality becomes the typical pattern.

Countries which appear to have attained a steady rate of growth of population resemble are Western and Southern Europe, U.S.A. and Japan.

Fig. 11.1 shows the different stages of demographic transition which would reveal that the difference between fertility and mortality rates is small in the first and third stages. The main difference between the “old balance” (viz., that in the first stage) and the “new balance” (viz., that in the third stage) is that in the latter case the balancing between the death and the birth rates occurs at a much lower level than it does in the former case.

Critical Evaluation of the Theory of Demographic Transition:

Theory of demographic transition and its application to developing countries has also been criticised.

The following shortcomings of this theory have been pointed out:

1. European Experience and not a Theory:

Firstly, the critics have pointed out that particular demographic transition is a fact obtained from European experience and not a theory. In other words, the theory of demographic transition only describes the historical experience of population growth and economic growth in currently developed European countries. The experience and the fact of the European development cannot be generalised to formulate a theory which is applicable to developing countries.

Therefore, it has been argued that demographic transition witnessed in European development cannot necessarily occur in the developing countries of today. Various reasons have been given in defence of this view. Firstly, it has been argued by Kuznets that the demographic characteristics of the currently developing countries are quite different from those of Europe or other currently developed countries in their period of industrial revolution.

According to him, as compared to today’s underdeveloped countries, pre-industrial European countries have had smaller size of the population (generally less than 15 million), lower birth and death rates and smaller rates of growth of population. For instance, in England in its period of industrial revolution, largest increase in population per decade was nearly 18% during 1811-21 which amounts to 1.7% per annum. This is substantially below the rate of population growth ranging between 2 and 3½% per year in the currently developing countries.

2. Causes of decline in death rates are different:

Another criticism against the theory of demographic transition as applied to developing countries is that the causes of the decline in death rate in the European countries were different from those operating in the developing countries of today. The decline in death rate in the European countries was mainly due to the rise in the standard of living, improvements in the diet of the people which increased their resistance to the diseases. Medical improvements, except in case of smallpox, were not a significant cause of decline in death rate in the growth of European countries.

On the other hand, the sharp decline in the death rate in the developing countries like India is mainly due to the improvements in medicine, public health techniques, use of insecticides, mass vaccination and the discovery and use of antibiotics and sulpha drugs. These medical improvements have caused a sharp decline in death rate even when the per capita income or standard of living of the people has not shown any significant increase.

In other words, the population explosion in Europe was caused by the rise in per capita income and consumption standards as a result of economic growth, whereas the population explosion experienced by the presently developing countries is due to the factors which are external to the process of economic growth. Medical improvements which have brought down the death rate have not been caused by the increase in per capita income but have led to the decline in death rate and have caused rapid increase in the rate of population growth. They are making increases in per capita income even more difficult to achieve.

Theory of Fertility:

To explain the changes in birth rate witnessed during demographic transition, especially fall in the birth rate in stage 3 of the demographic transition with the development of the economy, economists have used the microeconomic theory of family fertility. According to the neoclassical theory of consumer’s behaviour, to maximise his satisfaction from consumption of goods, children are treated as normal goods in this analysis of family fertility. As in case of demand for other goods economists use indifference curves between demands for children and all other goods and budget constraint to explain the family fertility.

For explaining demand for surviving children and therefore fertility, like the demand for other goods, the following function is employed –

C_d=f (Y,P_c,P_x,t_x), x=1,…n

where C_d represents demand for serving children; Y represents level of family income; P_c is net price of children which is the difference between the anticipated cost of children (which includes the direct cost of upbringing of a child and opportunity cost of a working mother’s time) on the one hand and benefits (which may consist of potential child income and age old support) on the other P_x stands for price of all other goods, t_x stands for tastes or preferences for other goods relative to having children.

In Fig. 11.2 and 11.3 we graphically represent the theory of fertility. In these figures along the horizontal axis we measure the number of children desired (C_d) and along the vertical axis we measure the demand for other goods by the parents which we write G_p. Families desires and preferences between demand for children (C_d) and other goods (G_p) are shown by a set of indifference curves, IC₁, IC₂, IC₃. Each indifference curve is a locus of various combinations of children and other goods which give the same amount of satisfaction to the parents and the higher the indifference curve, the greater the satisfaction of the parent.

The family’s capacity to buy the alternative combinations of goods and children is represented by the budget constraint line AB. Note that the budget constraint line AB is determined by the perceived income by the family and prices of goods and children. The price of children is determined by the costs of upbringing of children.

These costs are of two types:

(1) Direct cost of rearing children and as they need to be fed, clothed, kept in good health, given some education, and

(2) Indirect costs which are the opportunity cost of women who look after their children and these opportunity costs are income forgone by the working women during the time they spend for bringing up their children.

It is worth mentioning that steeper the budget constraint line (i.e., the greater its slope), the higher the price of children relative to goods. Now, according to the fertility theory based on neoclassical indifference curve demand theory, from the available combination of goods and children lying on the budget constraint line the family will choose a combination that maximizes its subjective satisfaction. In Fig. 11.2 it will be seen that such a satisfaction-maximizing combination is represented by the tangency point E on the budget constraint line AB. At point E, the family demands C₁ children and G₁ other goods.

Now, if family’s income increases, budget constraint line shifts outward, say to dotted A’B ‘. Now, new budget constraint line A’B’ is tangent to higher indifference curve IC₃ at point R and is demanding C₂ children and G₂ goods. This is not surprising as children in the fertility theory are treated as a normal good whose demand increases as income increases. This is particularly relevant for poor countries where children are often demanded as a source of financial security or support.

Rise in Cost of Children:

Suppose there is a rise in opportunity cost of children as female member is a working woman who will have to take the responsibility of bringing up the children and therefore she has to forgo her income in the process of upbringing of children. With the rise in opportunity cost of children, budget constraint line will rotate from AB to AD in Fig. 11.3 and the family moves from equilibrium point E on indifference curve IC₂ to the equilibrium at point F on lower indifference IC₁ and is now demanding C₁ number of children and G₁ amount of goods; C₁ < C₃ .That is, with the rise in opportunity cost of children, the family is demanding fewer children. This is an important conclusion from the theory of fertility which has been found to be true by empirical evidence. For example, in the State of Kerala where women are quite literate and are employed, the birth rate is lower as compared to other States of India.

Now, suppose there is simultaneous increase in family’s income (say, rise in wages) and rise in opportunity cost of children as a result of expansion in employment for women. This will cause both an outward shift and downward rotation of the budget constraint line. In Fig 11.3 to obtain such a budget line we draw a new budget line RT parallel to the rotated budget line AD at a distance equal to the increase in income.

It will be seen from Fig. 11.3 that the new budget constraint line RT depicting both the increase in income and rise in opportunity cost of children is tangent to indifference curve IC₃ at point H at which family demands or desires OC₂ number of children which are fewer than OC₃ prior to increase in income and rise in opportunity cost of children. Further, at new equilibrium at point H on higher indifference curve IC₃, the family is consuming more amounts G₃ of goods which make it better off than before.

Besides, it may be noted that as income of the family increases the parents may like to spend more on each child for providing them better education and keeping then well-nourished and healthy and this would also cause the parents to prefer to have a fewer children.

It is worth mentioning that the conclusions of economic theory of fertility explained above are in conformity with the theory of demographic transition according to which in the third stage of demographic transition birth rate falls coupled with already falling death rate brings down the rate of growth of population.

From the economic theory of fertility as applied to developing countries, Todaro and Smith reach the following conclusions “When the price or cost of children rises as a result of, say” increased educational and employment opportunities for women or a rise in school fees or the establishment of minimum-age child labour laws or the provision of publicly financed old-age social security schemes, parents will demand fewer additional children substituting, perhaps, quality for quantity or a mother’s employment income for her child rearing activities. It follows that one way to induce families to desire fewer children is to raise the price of child rearing, say, by providing greater educational opportunities and a wider range of higher-paying jobs for young women.”