Population and Economic Growth in Developing Countries

Purpose: This paper examines the economic effects of the demographic transition in developing countries. Findings: Based on data from the World Bank and using a sample of forty-three developing economies, we find that the growth rate of per capita GDP is linearly dependent upon population growth, both the young and old dependency ratios, the mortality rate, and whether or not the rate of population growth is less than 1.2 percent per year. Using interaction variables in light of the severe degree of multicollinearity among explanatory variables, we find that per capita GDP growth linearly depends on population growth, the old dependency ratio, the mortality rate, and the interactions between population growth and both the young and old dependency ratios, between population growth and whether or not the rate of population growth is less than 1.2 percent per year, and the interaction term between the young dependency ratio and whether or not the rate of population growth is less than 1.2 percent per year. Practical Implications: Statistical results of such an empirical examination will assist governments in devising policies aimed at influencing the economic effects of the demographic transition.. Methodology/Approach: Data for all variables are from the 2010 World Development Indicators. We apply the least-squares estimation technique in a multivariate linear regression. We also test for the nonlinear effect of population growth on economic growth and note that the introduction of interaction terms between population growth and dependency ratios as well as those between whether or not the population growth rate is less than 1.2 percent and population growth and the young dependency ratio yields better statistical results. JEL Classifications: O12, O15, O50