Economic growth is an increase in the production and consumption of goods and services.

It
entails increasing population and/or per capita consumption. Economic growth is the most
fundamental indicator of an economy's health - the rate at which national income is
growing.
It is conventionally measured as the percent rate of increase in real gross domestic product,
or real GDP. Of more importance is the growth of the ratio of GDP to population (GDP per
capita), which is also called per capita income. An increase in per capita income is referred to
as intensive growth. GDP growth caused only by increases in population or territory is
called extensive growth.
[2]

Growth is usually calculated in real terms i.e., inflation-adjusted terms to eliminate the
distorting effect of inflation on the price of goods produced. In economics, "economic growth" or
"economic growth theory" typically refers to growth of potential output, i.e., production at "full
employment".
As an area of study, economic growth is generally distinguished from development economics.
The former is primarily the study of how countries can advance their economies. The latter is the
study of the economic aspects of the development process in low-income countries.
Since economic growth is measured as the annual percent change of gross domestic product
(GDP), it has all the advantages and drawbacks of that measure. For example, GDP only
measures the market economy, which tends to overstate growth during the change over from a
farming economy with household production. An adjustment was made for food grown on and
consumed on farms, but no correction was made for other household production. Also, there is no
allowance in GDP calculations for depletion of natural resources.


Relationship between population and economic growth

Asia (South and East) and the Pacific





In the early of twenty- first century, the world population had fluctuated around six
billion, in which developing countries contributed to 80% of the total amount

1 2 3 4 5 6 7 8 9 10
Population
Growth
Total
Population
Life
Expectancy at
Birth
Infant
Mortality
Rate
Child Mortality
Rate
average annual
growth rate (%) millions years
per 1,000
live births
Male
per
1,000
Female
per
1,000
1980-
1998
1998-
2015 1998 2015 1980 1998 1980 1998
1988-
98
1988-
98
L 1 Afghanistan .. .. 25 .. 40 46 183 149 .. ..
H 2 Australia 1.4 0.2 19 22 74 79 11 5 .. ..
L 3 Bangladesh 2.1 1.5 126 162 48 59 132 73 37 47
L 4 Cambodia 2.9 1.5 11 15 39 54 201 102 .. ..
M 5 China 1 1 1,239 1,389 .. 70 42 31 10 11
H 6
Hong Kong,
China 1.6 1 7 8 74 79 11 3 .. ..
L 7 India 2.0 1.3 980 1225 54 63 115 70 29 42
L 8 Indonesia 1.8 1.2 204 251 55 65 90 43 19 20
H 9 Japan 0.4 -0.1 126 125 76 81 8 4 .. ..
M 10
Korea, Dem.
Rep. 1.5 0.7 23 26 67 63 32 54 .. ..
H 11 Korea, Rep. 1.1 0.6 46 51 67 73 26 9 .. ..
L 12 Lao PDR 2.4 2.2 5 7.2 45 54 127 96 .. ..
M 13 Malaysia 2.7 1.6 22 29 67 72 30 8 4 4
L 14 Mongolia 2.4 1.5 3 3 58 66 82 50 .. ..
L 15 Myanmar 1.5 1.1 44 54 52 60 109 78 .. ..
L 16 Nepal 2.5 2.1 23 32 48 58 132 77 .. ..
H 17 New Zealand 1.1 0.5 4 4 73 77 13 5 .. ..
L 18 Pakistan 2.6 2.3 132 195 55 62 127 91 22 37
M 19
Papua New
Guinea 2.2 1.8 5 6 51 58 78 59 28 21
M 20 Philippines 2.5 1.7 75 100 61 69 52 32 21 19
H 21 Singapore 1.8 1 3 4 71 77 12 4 .. ..
M 22 Sri Lanka 1.3 1.1 19 23 68 73 34 16 10 9
M 23 Thailand 1.5 0.9 61 71 64 72 49 29 11 11
L 24 Vietnam 2 1.2 77 94 63 68 57 34 .. ..

.. means that data are not availabe or that aggregates cannot be calculated because of missing data in the year
shown.
* PPP is purchasing power parity.
H. High-income economy.
L. Low-income economy.
M. Middle-income economy.
h. Estimated to be a high-income country.
l. Estimated to be a low-income country.
m. Estimated to be a middle-income country.

and mostly occur in Asian countries. The fact is population and economic
growth always has a close relationship. Over periods, economists and other
social scientists have long debated how population affects a society. The most
direct effect is on the size of labor force: A large population means more
workers to produce goods and services. The tremendous size of the Chinese
population is one reason why China is such an important player in the world
economy.
Rapid population growth rates can make it difficult for countries to raise standards
of living and protect the environment because the more people there are, the
greater the need for food, health care, education, houses, land, jobs and energy.
Adding more people to a countrys population means that the wealth must be
distributed among more people, causing GNP per capita to decrease at least in
the short term.
Responding to the needs of a rapidly growing population can challenge a countrys
ability to manage its natural resources on a sustainable basis. For example,
people may not be able to get access to safe water because more and more
households, farms and factories are using increasing amount of water.
Deforestation may occur as trees are cut to provide fuel for cooking, building
materials or land for grazing and agriculture. Desertification may occur as land
that has been intensively farmed becomes depleted of its nutrients or eroded
when trees whose root systems once anchored in the soil are gone. The air may
become polluted as people crowd into cities, the number of cars increases,
people use more and more energy and economies continue to industrialize.

3.1 Positive effects
3.1.1 The Economies of Scale phenomenon of population growth
According to Kendrick (1977), economies of scale are an important factor to
increase the productivity (increase in output per unit of labor) of one nation. A country,
which has a rapid population growth, can suffer many burdens, such as capital dilution,
shortage of necessity resources and the casualty could lead the whole population to
poverty, famine and starvation. However, there are three arguments supported for the
idea that population growth can boost the country economy by economies of scale
phenomenon.
Firstly, a nation, which has a rapid population growth rate, means that its population size
will develop with a quicker rate. The bigger the population size is, the larger the market
size becomes. In order to meet the product demand of the large-size market, bigger and more
effective as well as longer performance period manufacturing plants are required to
develop (Simon 1994). Therefore, the producing cost and setup cost per one output have
tendency to reduce.

Secondly, the large-scale of population not only have a large size market but also possess
an impressive number of labors. Because of the availability of labor force, it is possible
for firms to divide their labor into particular division of labor to do specific tasks. An
excellent example of specialization is car assembly line in which each division just takes
responsibility of installing only one part of the car such as engine or car wheels.
According to Adam Smith, division of labor has caused a greater increase in
production than any other factor. This diversification is greatest for nations with more
industry and improvement, and is responsible for "universal opulence" in those
countries. Moreover, through specialization, working skill of labor force is likely to
improve more quickly with learning-by-doing. Since a large size of population demands a
tremendous number of products, these workers have more chances to improve their
working skill. As a result, the average time spending for producing one unit of output
have tendency to decrease more quickly than in smaller market-size. Correlating with
saving producing time, the cost per one product is also deducted and firm is more
efficient through specialization.
Finally, the rapid population growth rate could cause a positive effect on communication
and transportation. Transportation plays an important role in economic development. A
good transportation system can help reduce transportation cost and travel time. Along
with high population growth rate, the increase in population density is inevitable. A dense
population is likely to pressure the government to develop more in transportation system
such as railroad, highways and road. Take China as an example, according to United
Nations Population Division, in 1985, its population density was 110 people/km2 and the
total amount of railroad was 52,000 km while in 2010, the total length of railroad is
91,000 km (increase 75%) and its population density is 141 people/km2 (increase 28%).
3.1.2 Acceleration of technological progress
A country, which has a higher population growth rate, implies that there is a rapid
increase in school-age population. Instead of investing in other essential industrials to
increase the overall capital accumulation, the government has to spend more public
spending in schooling and educational facilities. The pressure created by massy number
of school-age population also retards the general education level of the nation. However,
in long run, huge investment in education in present can result in the accumulation of
human capital, which is a special stock of competence, knowledge, personalities as well
as the ability to produce economic value. Human capital has two effects on economic
development. First, human capital can be used as a productive factor like other capitals
like machine, vehicles etc. Second, human capital can directly contribute to the
development of new technology which effect positively to the productivity. Hence,
greater population growth tends to raise the level of technology growth.
The population growth enlarges the size of labor force, so, the average wage rate,
therefore, is pushed down. In developing countries, low wage rate is considered an
important factor in the progress of industrialization and modernization, which are closely
related to the wealth of the nation. Moreover, instead of spending a huge amount of
money to pay the labor, firm can invest more in R&D sector, which finally result in the
sufficient development of new technology that leads to higher productivity. Hence, the
growth of population is likely to help firms to have a better chance in competing with
other foreign rival firms.

http://www.worldbank.org/depweb/english/modules/social/pgr/case1.html



Taking advantage of the demographic bonus in Vietnam: East Asian and Asian
Experiences

Demographic bonus occurs when a the Total Dependency Ratio is less than 50,
meaning that a person of non-working age will be supported by more than two
working age persons. As a matter of fact, as demographic changes which involves both
Fertility and Mortality Rates, the age structure is also changed producing a
Demographic Bonus in a certain period.
Demographic bonus period does not last forever. In fact, it only comes in a specific
duration. Therefore, any country in Demographic period must adjust its own social,
economic and political factors so that it can take the most advantage of such a great
population structure.


The Figure 1 above compares the growth of per capita income in East Asia and Asian
countries for the period from 1950 to 2005. Obviously, except for Japan which proved
to be one of the most developed countries in the world, Asian countries had the same
level of per capita income from 1950 to about 1965. However, from 1965 on, there
were some differences in the growth. To be more specific, Taiwan and South Korea
were two countries that experienced the fastest and most significant improvements in
their earnings per person. Besides, the period also witnessed a moderate positive
change in the per capita income of both Malaysia and Thailand. Indonesia and
Philippines had a positive change in their per capita income at the beginning of this
period but then suffered from some negative effects which drove their individual
earnings down.




Figure 2 illustrates the per capita income growth rate of Asian countries during the
period of 30 years from 1960 to 1990. South Korea, Singapore, Taiwan and Japan had
the highest rate with over 5% each. Thailand and Indonesia are in the same area but
still had a much lower rate of income growth than those four countries mentioned
above. By and large, it may take those two countries several decades to catch up with
the growth of such countries. So What are the underlying causes? What enables them
to make such a big difference?

1. East Asian Experience:

To begin with, age structure is one of the major factors that contribute to the success of
East Asian countries over the above period. Age structure presents the distribution of a
population by age or age group. The fact that each age and age group has different
characteristics in terms of labour and consumption has distinct consequences for the
economy of a country. The young, for example, require an intensive investment in
health and education in order to produce a healthy and skillful labour force later, while
the elderly require good health care and sustainable retirement schemes. When the
relative size of each of these groups in a population changes, so does the Intensity of
the related economic opportunities and pressures because of their impact on economic
growth and per capita income. According to Bloom and Williamson (1998) who ran a
cross-country regression of economic growth applied to developing and developed
countries, the results indicate that the population dynamics can explain as much as one
third of the miracle happening in the growth of GDP per capita in East Asia.
In addition to age structure, there are also several factors that lead to the so-called
miracle era in East Asia, including : a large and high quality base of human
resource, a stable population and strong growth of employment and last but not least,
the high savings and investment rates.




Source: JICA (2003)
According to JICA (2003), Japan had taken a comprehensive population policy
throughout crucial sectors such as the healthcare system, financial and fiscal
sectors, educational sectors, industrial structure and social related fields. All of
such improvements contributed to the 5.3% of growth rate in per capita income
in Japan for the late twentieth century (Figure 2).

Moreover, a substantial increase in the labor force coupled with high employment
rate took an integral part in East Asias success making its population strong
and economically active in the world market. High-performing economies in
Asia has the most significant labour force growth rate compared to the
population growth rate with the difference of 0.8- the highest number in the
table 1.

In the meantime, employment and productivity especially in service and
manufacturing sectors improved enormously. A reduction in the number of
agricultural laborers was made up for by the growth in the labor productivity in
the agriculture. From the Table 2, it is striking that Japan was among the
countries with lowest growth rate in the agricultural labor force (-3.9%) but the
highest growth rate in the labor productivity in the same sector (4.5%)





Saving and investment through the efficient mobilization of internal resources
played a crucial role with regard to the persistent growth during the miracle era
of this region as well: Figure 4 shows that, during 1960-1990, the average annual
growth rate of per labour capital in Japan was 7.6%, as compared to that of South
Korea and Taiwan which was more than 8.5%.

Source: Summer and Preston (2001), as quoted by East-West Center (2009)

In addition to the important factors mentioned above, a number of studies
indicate that favorable economic and political conditions also largely
contributed to East Asias ability to make the utmost use of the Demographic
Bonus. Along with the steep growth of capital stocks and quality human resources,
active strategies and policies of East Asian governments further helped to
explore the potential of a solid base of knowledge and technological knowhow
for the internalization of economic growth. Figure 5 shows the difference
between South Korea and Ghana in terms of per capita income. In this figure, for
the sake of comparison, per capita income is estimated by the 1990 prices. It is
obvious that after three decades of growth, the gap between the two countries
was still widening despite having a same starting point in the early 1950s;
South Korea became a high income country, while Ghana remained poor. In
this case the diff erence was largely attributed to diff erences in knowledge and
know-how (World Bank, 1997).


2. Asean Experience:
The Demographic transition in ASEAN countries has occurred more slowly than
that in East Asia. According to the data from United Nations in 2008, Asean
countries have just started their Demographic Bonus period with Singapore
being the first country from 1980, followed by Thailand in 1990 and Indonesia
and Vietnam in 2010.

Source: Own compilation from the United Nations (2008).

It can be seen from the graph that the average period of Demographic Bonus in
Asean countries is about 30 years.




One of the ways in which ASEAN countries can be characterized with regard to their
eff orts to promote economic growth is by their signifi cantly diff erent educational
and health strategies and policies as well as diverse political environments. Both Thailand
and Malaysia are trapped in the middle income level of development despite their heavy
investment in the quality of the labor force. The root cause of this situation is that in these two
countries human resources are heavily dependent on foreign guidance, particularly with
regard to managerial and productive skills. The growth rates of employment and labour
productivity have therefore not signifi cantly increased, and as such it has become diffi cult to
take off like South Korea, Taiwan or Singapore have been able to do.
In summary, the above analysis shows that a stage of Demographic Bonus has
occurred or will occur in East Asian and ASEAN countries, but that the actual benefi t
obtained from this important demographic opportunity is dependent on the diff erent
approaches which have been or will be employed to prepare and make use of it. Some
countries, e.g. Japan and South Korea, have been successful in this regard due to the effi cient
use of their human resources, while other countries are struggling to gain from their
Demographic Bonus period while they are already in the midst of it (e.g.Thailand) or are still
preparing to take advantage of the Demographic Bonus (Indonesia, Malaysia, and the
Philippines). As it thus appears, a Demographic Bonus period is only an opportunity; it will
not bring any Bonus to countries who do not have appropriate and well planned strategies
and policies to make use of it. This is an important message for Viet Nam as it is on the verge
of welcoming its own stage of demographic opportunity.