Academic journal article Economic Inquiry

Population Growth and Industrialization

Academic journal article Economic Inquiry

Population Growth and Industrialization

Article excerpt

I. INTRODUCTION

What are the impacts of population growth on a country's possibility of achieving industrialization? On the one hand, if population growth always leads to higher economic activities, why did China before 1840, the country with the largest population in the world at that time, not achieve industrialization before Britain? A larger population may harm a country's ability to achieve industrialization as it may lead to a shortage of food. Thomas Malthus is a famous example of scholars with pessimistic views about the impact of population growth on industrialization. He assumes that population grows at an exponential rate, as also assumed in this article. He also assumes that the production of food grows at a geometric rate. Compared to the growth rate of population, the growth rate of food is too small. If birth control is not implemented, food shortages might lead to famine and war. On the other hand, in the literature, it is also recognized that a larger population may be beneficial for industrialization since it makes the adoption of increasing returns to scale technologies more profitable. For example, North and Thomas (1973) and Rosenberg and Birdzell (1986) have shown that population growth and the development of commerce and trade preceded the Industrial Revolution in Europe. Ashton (1997, 2) argues that "the outstanding feature of the social history of the period--the thing that above all others distinguishes the age (1760-1830) from its predecessors--is the rapid growth of population. (1) Thus, population growth may lead to Malthus population cycles in China and Europe before the arrival of the Industrial Revolution. However, population growth and development of commerce were beneficial for the Industrial Revolution in Britain.

This article studies the role of population growth in the process of industrialization in a general equilibrium model. In each period, a representative individual consumes both agricultural and manufactured goods. Agricultural output is produced by land and labor by employing a constant returns to scale technology. The slow progress of the productivity of the agricultural sector may lead to a breakdown of the industrialization process, as the subsistence constraint requires that each individual needs a minimum level of agricultural goods to survive. We provide a formal presentation of the idea that the manufacturing sector is the leading sector of industrialization, as described by Rostow (1960): the effective amount of land may be augmented by agricultural technology, which is positively related to growth in the manufacturing sector. (2) Manufactured goods may be produced by either a constant returns to scale technology or increasing returns to scale technologies (Murphy, Shleifer, and Vishny 1989b). Increasing returns to scale come from fixed costs of production.

At early stages of development, the quantity of manufactured goods is too small to support the adoption of increasing returns to scale technologies. When the population grows large enough, increasing returns to scale technologies may be adopted. This starts the "takeoff" process. If the improvement of agricultural technology is not great enough, population growth outpaces the growth of agricultural output. This gradually causes per capita consumption of agricultural goods to be lower than the subsistence level, leading to a breakdown of the growth process. In this sense, agriculture is the bottleneck of industrialization. However, if the manufacturing sector adopts new technologies fast enough and the spillover to the agricultural sector is large enough, an economy is able to escape the Malthus trap. Thus, sustained development is possible, as pioneered by Britain.

An interesting question is why Britain rather than China became the first country to achieve industrialization. Scholars such as Needham (1969), Lin (1995), and Pomeranz (2000) have tried to understand the puzzle that ancient China achieved higher living standards not exceeded by any other country until the eighteenth century, but it was unable to escape the Malthus trap. …

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