It struck me to find out that according to the UN’s official projections, populations of Tanzania and Uganda would exceed one billion people by 2100 (up from 45 and 33 million, respectively, in 2010) if total fertility rates in each of these countries remain constant at their 2010 levels (5.6 and 6.4 children per woman, respectively).
To be sure, this “constant fertility scenario” is not a likely one. For a number of reasons, fertility rates tend to fall as economies develop, and the process of demographic transition from high mortality and high fertility to low mortality and low fertility is already under way in both countries. Still, even under assumption that total fertility rates will gradually decline to about 2 children per woman (and there is no international migration), the UN estimates that there will be 171 million Ugandans and 316 million Tanzanians in 2100.
Is more people good news or bad news? While I share much of my colleague Wolfgang Fengler's optimism about the potential economic effects of population density, my answer to this question is the economists’ all-time favorite: it depends.
Increasing population density has two distinct economic advantages which economists refer to as agglomeration effects. First, as more people interact, there is more scope for innovation. Second, larger groups of population living in close proximity allow for economies of scale. Firms can produce goods in larger numbers at lower marginal costs and deliver them more cheaply, serving a larger market
Yet it would definitely be bad news for the countries if their fertility rates remained very high. If experience of other parts of the world and economic theory are of any guidance, this would require them to remain poor and predominantly rural. They would forego a unique opportunity to benefit from demographic dividend to economic growth, as demographic transition may positively affect growth of income per capita for a fairly long period of time. This happens in three different ways: through translation effects owing to the differential growth of the total population and the working population (if the share of the working-age population is increasing, any growth of output per worker translates into higher growth of output per capita, unless the difference is offset by increase in the unemployment rate or a fall in the labor force participation rate); through savings effects (more people of working age mean a higher share of savers in the population; higher probability of surviving into old age may also encourage higher savings rates); and through human capital effects (an increase in life expectancy generally implies better health and increases the demand for education; a lower number of children per working adult implies higher per child spending on education).
Can African countries benefit from the positive effects of higher population densities and of fertility decline at the same time? The answer is yes, if they urbanize. For agglomeration effects to be in place, it is enough for population density to be high in some parts of the country (e.g. in large cities), not necessarily everywhere (for example, overall population density in the US is rather low, differently from population density in its coastal areas). And our analysis in a recent report on demography and economic growth in Uganda suggests that while demographic transition will result in smaller population compared to the constant fertility scenario, demographic dividend to economic growth is likely to increase income per capita enough for the GDP – and the internal market – to be larger after fertility declines despite the smaller population.
More often than not demographic transition and accelerated urbanization work in synergy; the East Asian “tigers” are a classic example of this. On the one hand, urbanization tends to accelerate when a large cohort born during the period of rapid decrease in infant mortality (which usually declines before fertility does) moves into the working age, since members of a large cohort who have fewer children are more likely to migrate to urban areas. On the other hand, as urbanization produces agglomeration effects, it amplifies the magnitude of the demographic dividend. Urbanization also tends to further reduce fertility, as in most countries fertility rates in urban areas are lower than in rural areas. This occurs in part because of different social norms in urban areas, leading among other things to increased female labor participation and access to education for women in cities and towns, and thus to higher ages at marriage for urban women.
If urbanization does not proceed rapidly enough, high population density may become a curse rather than a blessing. This is because growing population density in rural areas results in shrinking amounts of land per person. Unless offset by rapid growth in agricultural productivity or by migration, this can create a fertile ground for social tensions of various nature. Many think that this dynamics, among other things, was in place in Rwanda in 1994. For countries which have large portions of the population employed in subsistence agriculture and which used to be sparsely populated but experience high-rate exponential growth of population due to high fertility, the symptoms of this problem may rapidly materialize at a stage when it is already too late to start addressing the problem.
While growing population densities will “push” people into the cities, urbanization will be more rapid and demographic dividend will be larger if it is easier for the migrants to find jobs in urban areas. This would require gradual – but not too slow! - strengthening of a number of policies and institutions. Business environment needs to be improved to create incentives for investing larger domestic savings as well as foreign savings into economy, and creating more jobs by doing so. This would involve better governance and macroeconomic stability. Sensible labor laws need to be put in place to encourage formal employment, including the laws on gender equality. Social services such as health, education, and family planning need to be strengthened, particularly in rural areas, to maximize benefits of higher per child investments in human capital. The financial sector needs to be developed to provide intermediation of growing savings into investments.
Another important factor will be location of the areas with high population density - and of the cities. More on this in my next entry to this blog.