AN EMPIRICAL ANALYSIS OF THE IMPACT OF DEMOGRAPHIC FACTORS ON

ECONOMIC GROWTH BASED ON GLOBAL DATA

Abstract

The current study sought to empirically investigate the relationship between demographic factors
and economic growth based on global data. The data employed in the study was from the sample
period: 1990 to 2017. The reason for using a 27-years-period was to capture all the demographic
transitions in the past three decades or so. The study establishes that, based on global data, there
is non-significance in the relationship between life expectancy and economic growth rate.
Further, there is a non-significance in the relationship between age dependency ratio and
economic growth rate. However, it was also established that there is a significant positive
relationship between economic growth rate and population growth. Life expectancy showed a
negative (but non-significant) relationship with economic growth; while the age dependency
ratio showed a positive non-significant relationship with economic growth.
An Empirical Analysis of The Impact of Demographic Factors on Economic Growth Based

on Global Data

Introduction

The population of a country, as many studies have established, is related to that country’s rate of
economic growth. Studies such as Birdsall et al. (2001) and Diep and Hoai (2015) investigated
various aspects of the population that have an impact on economic growth. The authors
established that, since the number of people in a country largely determines the number of labour
resources available, and depending on the literacy levels, the number also determines the quality
of skills in a country. The aspect denotes a probable reason as to why most studies have been
able to link population factors to the economic growth of a country. Bloom, Canning, and
Malaney (1999) argue that a larger population with a rapid rate of growth could have negative
impacts on the economic growth of a country, and the aspect is especially the case for the per
capita growth. The reason underlines why a significant relationship has been established between
population and economic growth, although the direction of the relationship has differed between
studies. Bhawna (2012) argued that a positive and significant relationship exists between
population growth and economic growth, but a negative and significant one between population
growth and economic growth rate.

Aim

In the current study, more demographic factors are investigated, and apart from population
growth, the study also investigates the age dependency ratio and life expectancy. However, it is
important to note that both life expectancy and age dependency ratio are facets of the population.

Justification

It has almost become common knowledge that there exists a link between population and
economic growth: The facet is perhaps because of the precise relationship between population
and the demand and supply of economic production (Birdsall et al., 2001). It is prevalent because
of the numerous studies that have, almost unanimously, established a significant relationship
between the two variables. However, the studies (to the best knowledge of the author), have used
country or regional data to carry out their empirical analysis. Diep and Hoai (2015), investigated
the relationship between demographic factors and economic growth in Asia, South East Asia in
particular. Bhawna (2012) investigated the same variables in the context of India, while
Prskawetz et al. (2007) investigated the same variables in the EU, among many other studies.
The above facet denotes that extensive research has been carried out on the topic. Nevertheless,
even with so many studies on the relationship between economic growth and demographic
factors, the empirical contexts in most cases have been country, region, or trading bloc. The
study proposed a different empirical context, and this is the use of global data, rather than
national or regional historical data. The aspect presents a significant gap, not just in the
theoretical literature, but also the empirical literature as well, and this study intends to fill the
same.
Theory and hypothesis

Empirical Literature

Diep and Hoai (2015) investigated the relationship between economic growth and demographic
factors, and the specific demographic factors investigated included the age structure, the
population growth, and life expectancy. The researcher had hypothesised the existence of a
bidirectional relationship between the dependent variable (economic growth) and the two
independent variables (life expectancy and population growth).

The sample period used by Diep and Hoai (2015) was 1990-2013, and this is the period, as the
researchers explain when the region (South East Asia) experienced a lot of demographic
transitions. The study utilised a multiple regression model, and GDP per capita as the dependent
variable as shown in the regression equation below:

Ln (GDP per capita) it = 𝛽0 + 𝛽1 Ln (Life expectancy) it + 𝛽1 (Population growth) it + 𝛽3 Ln (Life

expectancy) it +……………. + 𝜀it.

The study establishes a significant and positive relationship between population growth and
income per capita growth, which was used as the proxy for economic growth in that case. Other
variables, life expectancy and age dependency ratio were also significant as far as economic
growth is concerned since it was established that a higher life expectancy also means an increase
in the income per capita.

Another study by Bhawna (2012) investigated how demographic factors could impact economic
growth in India, and the sample period was between 2001 and 2010. The research findings
suggested a negative relationship between population growth and economic growth per capita,
and the researcher concludes that India’s main problem of economic growth is the rapid
population growth. The model used in the study by Bhawna (2012) was a correlation model,
where population data was correlated with various indicators of economic growth.
Hypothesis

Null hypotheses

H0= µ0 =µ1 (there is no significant relationship between life expectancy and economic growth
rate)
H0= µ0 =µ1 (there is no significant relationship between population growth and economic
growth rate)
H0= µ0 =µ1 (there is no significant relationship between age dependency ratio and economic
growth rate)
Alternative hypothesis

H1= µ0 ≠µ1 (there is a significant relationship between life expectancy and economic growth
rate)
H1= µ0 ≠µ1 (there is a significant relationship between population growth and economic growth
rate)
H1= µ0 ≠µ1 (there is a significant relationship between age dependency ratio and economic
growth rate)
 Theoretical Literature

Demographic factors play a crucial role in determining the growth of capita income in any
country. According to Cai (2012), demographic factors such as population growth, labour, age
structure, and life expectancy play vital roles in the economic growth of a population. Besides,
the demographic factors act as the link between the population and both the supply and demand
for economic production. In relation to population growth and labour, economic growth is often
dependent on the productivity efficiency and the changes in the number of individuals in the
workforce. Recent studies show that the economy of many countries, primarily the developed
countries have previously been characterised by mainly the service industries, but the increased
competition and advances in technology, productivity gain has been diminishing in the service
sector.

In line with Acemoglu and Restrepo (2017), many people in developed countries tend to be
approaching retirement, leading to changes in labour demographics. In addition, the working-age
population globally tend to be falling dramatically, and the cost of maintaining the elderly tends
to fall on those in the labour force. For instance, Japan has the highest rate of diminishing
working-age population, increasing the cost of maintaining the elderly and forcing the
government to put strains on the sponsored efforts such as social security and Medicare (Chand
and Tung 2014). In most cases, the aspect would negatively impact the productivity of a country
and thus inhibiting economic growth.

As England (2017) argues, the rate of economic growth is partially determined by age and sex in
terms of workforce supply. Besides, the occupational pattern of a country also determines its
capacity to attain full employment rates and produce new wealth effectively. Additionally, life
expectancy also has an impact on the economic growth of a country. According to Chen et al.
(2012), life expectancy determines the productivity and the level of work people need in order to
save more for retirement. Thus, high life expectancy leads to economic growth while low life
expectancy limits economic growth of a country. In the past, the population of the world grew at
a lower rate due to high mortality rates offsetting high fertility rates, leading to low economic
growth. However, the increased advancement in knowledge and the ever-changing technology in
relation to advances in medicine, public health and nutrition has significantly lowered the
mortality rates (Glatzer 2012), meaning that there are more people available for work, which
works in favour of economic growth.
Methodology

Data and Data Source

The data used was from the sample period 1990 to 2017, and the reason why the study used a 27-
year-period was to capture all the demographic transitions in the past three decades or so. The
aspect was also to ensure that the data captured reflects an accurate picture of the demographic
and economic changes that have happened in the past. The source of the data was World Bank,
and the link is shown in the appendix. The data utilised featured countries from around the
globes.
Variables

Dependent variable

The dependent variable is the GDP growth rate; this is the proxy for economic growth.

Dependent variables

The dependent variables are the demographic factors, and they include life expectancy,
population growth, and age dependency ratio.
Data analysis and review of the results

To test the hypotheses, the data were analysed using multiple linear regression (MLR) and
correlational analysis. The analysis was conducted using the R statistical package.
 Correlation analysis

From the output below, some quick conclusions can be made; for example, there is a weak
negative correlation between the average GDP growth rate and life expectancy (correl. =
-0.05261756). There is also a weak positive correlation between the average population growth
and average GDP growth rate (correl.= 0.15066337), and a weak positive correlation between
GDP growth rate and the age dependency ratio (correl. = 0.06789724). The rest of the results as
shown in the output below:

#---------------------------------------------------------------------
--|

# 2. EXPLORING RELATIONSHIP BETWEEN VARIABLES
|

#---------------------------------------------------------------------
--|

#create a correlation matrix of DV with the other IV's

cor(agr[c("ï..Average.growth.rate","Average.life.expectancy","Average.
population","Average.age.dependency")])

## ï..Average.growth.rate
Average.life.expectancy

## ï..Average.growth.rate 1.00000000
-0.05261756

## Average.life.expectancy -0.05261756
1.00000000

## Average.population 0.15066337
-0.05683058

## Average.age.dependency 0.06789724
0.09268510

## Average.population Average.age.dependency

## ï..Average.growth.rate 0.15066337 0.06789724

## Average.life.expectancy -0.05683058 0.09268510

## Average.population 1.00000000 -0.03442977

## Average.age.dependency -0.03442977 1.00000000
 Multiple Linear Regression

In the MLR model below, the dependent variable was the average growth rate (average GDP
growth rate), and from the probability values, only population growth showed statistical
significance at 99% confidence level (0.01) (Pr(>|t|) = 0.019994 *). The rest of the variables did
not show statistical significance at any significance level, but life expectancy showed a negative
non-significant relationship with economic growth, while age dependency ratio showed a
positive non-significant relationship with economic growth.

# 4. MULTIPLE LINEAR REGRESSION

|

#---------------------------------------------------------------------
--|



#regression model

agr_model <- lm(ï..Average.growth.rate~., data = agr)



#view details of model

agr_model

## 

## Call:

## lm(formula = ï..Average.growth.rate ~ ., data = agr)

## 

## Coefficients:

## (Intercept) Average.life.expectancy
Average.population 

## 4.170e+00 -1.386e-02
4.921e-10 

## Average.age.dependency 

## 2.822e-02

#summary of model

summary(agr_model)

## 

## Call:

## lm(formula = ï..Average.growth.rate ~ ., data = agr)

## 

## Residuals:

## Min 1Q Median 3Q Max 

## -10.7277 -1.5031 -0.1178 0.9984 15.3910 

## 

## Coefficients:

## Estimate Std. Error t value Pr(>|t|) 

## (Intercept) 4.170e+00 1.213e+00 3.438 0.000692 ***

## Average.life.expectancy -1.386e-02 1.743e-02 -0.796 0.427083 

## Average.population 4.921e-10 2.101e-10 2.342 0.019994 * 

## Average.age.dependency 2.822e-02 2.335e-02 1.209 0.228008 

## ---

## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1

## 

## Residual standard error: 2.388 on 236 degrees of freedom

## Multiple R-squared: 0.03065, Adjusted R-squared: 0.01832 

## F-statistic: 2.487 on 3 and 236 DF, p-value: 0.06123

From the analysis, the first and third null hypotheses were supported. The second alternative
hypothesis was also supported, and as such, the conclusion is that only population growth has a
significant impact on economic growth.

In confirmation to Cingano (2014), economic growth often involves the effective utilisation of
all available physical resources of a country by the labour force. In order for a country to realise
its productive potential, the labour force which is enhanced by the population growth utilises all
the physical resources. Population growth makes a positive contribution to the labour force in a
country, thus, increasing the output per head ultimately leading to economic growth. The finding
is consistent with the findings of the current study. However, a rapidly growing population also
slows down the process of economic growth. In reference to Simon (2019), an increasing
population growth keeps per capita income low, which slows down the process of economic
growth.
 Conclusion

The study establishes that based on global data, there is no significant relationship between life
expectancy and economic growth rate, and there is no significant relationship between the age
dependency ratio and economic growth rate. However, it was also established that there is a
significant positive relationship between population growth and economic growth rate. These
findings, as has been established, have been inconsistent with most previous studies, but the facet
is mostly because the empirical contexts are different. None of the previous studies had used
global data.

 


Bibliography

Acemoglu, D. and Restrepo, P., 2017. Secular stagnation? The effect of aging on economic

growth in the age of automation. American Economic Review, 107(5), pp.174-79.

Bhawna, R., 2012. Impact of demographic features on the economic development of India from

2001-2010.

Birdsall, N., Kelley, A.C., Sinding, S.W. and Sinding, S. eds., 2001. Population matters:

demographic change, economic growth, and poverty in the developing world. Oxford University

Press.

Bloom, D.E., Canning, D. and Malaney, P.N., 1999. Demographic change and economic growth

in Asia. CID.
Cai, F., 2012. The coming demographic impact on China's growth: The age factor in the middle-

income trap. Asian Economic Papers, 11(1), pp.95-111.

Chand, M. and Tung, R.L., 2014. The aging of the world's population and its effects on global

business. Academy of Management Perspectives, 28(4), pp.409-429.

Chen, P.F., Lee, C.C. and Lee, C.F., 2012. How does the development of the life insurance

market affect economic growth? Some international evidence. Journal of International

Development, 24(7), pp.865-893.

Chen, P.F., Lee, C.C. and Lee, C.F., 2012. How does the development of the life insurance

market affect economic growth? Some international evidence. Journal of International

Development, 24(7), pp.865-893.

Cingano, F., 2014. Trends in income inequality and its impact on economic growth.

Diep, V.T.T. and Hoai, N.T., 2015. Demographic factors and economic growth: the bi-directional

causality in South East Asia.

England, P., 2017. Households, employment, and gender: A social, economic, and demographic

view. Routledge.

Fürnkranz-Prskawetz, A. and Lindh, T., 2007. The relationship between demographic change

and economic growth in the EU. Vienna Institute of Demography och Institutet för

Framtidsstudier.

Glatzer, W., 2012. Cross-national comparisons of quality of life in developed nations, including

the impact of globalisation. In Handbook of social indicators and quality of life research (pp.

381-398). Springer, Dordrecht.

Hock, H. and Weil, D.N., 2012. On the dynamics of the age structure, dependency, and

consumption. Journal of population economics, 25(3), pp.1019-1043.

Prskawetz, A., Fent, T., Barthel, W., Crespo-Cuaresma, J., Lindh, T., Malmberg, B. and

Halvarsson, M., 2007. The relationship between demographic change and economic growth in

the EU. Report for Tender VT/2005/035.

Raftery, A.E., Chunn, J.L., Gerland, P. and Ševčíková, H., 2013. Bayesian probabilistic

projections of life expectancy for all countries. Demography, 50(3), pp.777-801.

Simon, J.L., 2019. The economics of population growth (Vol. 5403). Princeton University Press.

Appendix

Data link
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD

Regression analysis R output

Multiple Linear Regression of Average Growth Rate

#import the dataset





#---------------------------------------------------------------------
--|

# 1. PREPARING THE DATASET
|

#---------------------------------------------------------------------
--|

#check dimension of the dataset and class

dim(agr); class(agr)

## [1] 240 4

## [1] "data.frame"

#structure of the dataset


str(agr)

## 'data.frame': 240 obs. of 4 variables:


## $ ï..Average.growth.rate : num 2.01 7.21 4.43 2.99 2.22 ...

## $ Average.life.expectancy: num 74.4 57.5 51.4 74.9 68.3 ...

## $ Average.population : num 92020 23670998 19488562 3043762
72169 ...

## $ Average.age.dependency : num 12.92 4.58 4.82 13.3 6.88 ...

#check normality of dependent variable


summary(agr$ï..Average.growth.rate)

## Min. 1st Qu. Median Mean 3rd Qu. Max. 


## -6.838 2.134 3.667 3.654 4.561 19.095

#use a histogram to confirm the normality


hist(agr$ï..Average.growth.rate) #DV appears normal distributed

#---------------------------------------------------------------------
--|

# 2. EXPLORING RELATIONSHIP BETWEEN VARIABLES
|

#---------------------------------------------------------------------
--|

#create a correlation matrix of DV with the other IV's

cor(agr[c("ï..Average.growth.rate","Average.life.expectancy","Average.
population","Average.age.dependency")])

## ï..Average.growth.rate
Average.life.expectancy

## ï..Average.growth.rate 1.00000000
-0.05261756

## Average.life.expectancy -0.05261756
1.00000000

## Average.population 0.15066337
-0.05683058

## Average.age.dependency 0.06789724
0.09268510

## Average.population Average.age.dependency

## ï..Average.growth.rate 0.15066337 0.06789724

## Average.life.expectancy -0.05683058 0.09268510

## Average.population 1.00000000 -0.03442977

## Average.age.dependency -0.03442977 1.00000000

#---------------------------------------------------------------------
--|

# 3. VISUALISING RELATIONSHIP BETWEEN VARIABLES
|

#---------------------------------------------------------------------
--|



#use scatterplot matrix to display the relationship

pairs(agr[c("ï..Average.growth.rate","Average.life.expectancy","Averag
e.population","Average.age.dependency" )])



#display a more detailed scatterplot matrix

library(psych)

## Warning: package 'psych' was built under R version 3.5.3

pairs.panels(agr[c("ï..Average.growth.rate","Average.life.expectancy",
"Average.population","Average.age.dependency" )])
#---------------------------------------------------------------------
--|

# 4. MULTIPLE LINEAR REGRESSION
|

#---------------------------------------------------------------------
--|



#regression model

agr_model <- lm(ï..Average.growth.rate~., data = agr)



#view details of model

agr_model

## 

## Call:

## lm(formula = ï..Average.growth.rate ~ ., data = agr)

## 

## Coefficients:

## (Intercept) Average.life.expectancy
Average.population 

## 4.170e+00 -1.386e-02
4.921e-10 

## Average.age.dependency 

## 2.822e-02

#summary of model

summary(agr_model)

## 

## Call:

## lm(formula = ï..Average.growth.rate ~ ., data = agr)

## 

## Residuals:

## Min 1Q Median 3Q Max 

## -10.7277 -1.5031 -0.1178 0.9984 15.3910 

## 

## Coefficients:

## Estimate Std. Error t value Pr(>|t|) 

## (Intercept) 4.170e+00 1.213e+00 3.438 0.000692 ***

## Average.life.expectancy -1.386e-02 1.743e-02 -0.796 0.427083 

## Average.population 4.921e-10 2.101e-10 2.342 0.019994 * 

## Average.age.dependency 2.822e-02 2.335e-02 1.209 0.228008 

## ---

## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1

## 

## Residual standard error: 2.388 on 236 degrees of freedom

## Multiple R-squared: 0.03065, Adjusted R-squared: 0.01832 

## F-statistic: 2.487 on 3 and 236 DF, p-value: 0.06123