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OCR for page 47
Do lower population
densities lead to lower per
capita incomes via a reduced
stimulus to technological innovation
and reduced exploitation of
economies of scale in production
and infiastructure?
Ihe proposition that rapid population growth and greater population density
lead to higher per capita incomes has been advanced for both ancient
and modem economies and both developing and developed countries. It
can also be argued that the possibilities of realizing any economies of
scale Trough international trade and of adapting technology developed by
developed countries would make this proposition false for contemporary
developing counties. This discussion distinguishes between manufacturing
and agriculture and between changes that make it possible to use factors in
different proportions and changes that yield more output for factors used in
given proportions. It should be noted that Here is an important difference
between Be proposition that greater density is beneficial and the proposition
Tat rapid population growth is beneficial. The beneficial influences of greater
density, if Hey exist, may accrue slowly over time; in the short and medium
run, they may be overwhelmed by the costs imposed by rapid population
growth. And it may sometimes be possible to capture the benefits of density
by concentrating the existing population in a smaller area.
In Denison's (19743 calculations for the United States, changes in all
measured economic inputs account for only about 50 percent of total economic
grown and 20 percent of growth in per capita income. The remainder Denison
classifies as due to advances in knowledge, economies of scale, changes
in the efficiency of the allocation of labor, and some additional minor
categories. Ihus, in order to understand the consequences of population
growth, one must understand the influence of those factors on He grown
of per capita income.
47
OCR for page 48
48
MANUFACTURING
POP ULA~ION GROWTH AND ECONOMIC DEVELOPMENT
We begin with the question of whether larger populations may lead to
economies of scale in manufacturing. Empirical research has shown that
economies of scale in the provision of infras~ctural services do exist at
the city level and that they are weakly associated with the overall size of
the city. They are much more strongly associated with the local size of
the particular industries in which the city specializes; these economies of
scale are called "localization economies" (Henderson, 1985~. Localization
economies, which are exhausted above moderate city size, arise from several
sources. The easy and rapid exchange of information within an industry
facilitates the adoption of new technology, and possibilities of specialization
of tasks within He industry emerge. There is also the possibility of drawing
on a larger experienced work force. The nature of these economies suggests
that national size and population density should be of little relevance, except
insofar as they provide a large enough market to allow the industry to
reach a sufficient size within at least one city (Henderson, 1985~. It is
also thought that these localization economies occur primarily for goods
that are produced using technology (imported from developed countries) with
relatively high capitalllabor ratios and that such goods are primarily demanded
by He wealthiest segment of Be populations in He developing countries.
Modern consumer durables are examples of such goods. Thus, the existence
of manufacturing economies of scale in developing countries may occur
principally when the income distribution is quite unequal. Labor-intensive
manufacturing for a low-income mass market might well not experience such
economies of scale (James, 1985~.
Economies of scale at the national level may also occur. Denison (1974)
concluded that for the United States over the period 1929-1969, economies
of scale contributed a little more than 10 percent to the increase in income
per worker and that their contribution was substantially greater Han the
contribution of increased capital per worker and nearly as large as He
contribution of education. However, the empirical and methodological basis
for He calculated scale returns was very weak.
Aside from economies of scale for a given technology, might greater
population size or density lead to more rapid technological progress in
manufacturing? Without a local capital goods industry, there may be less
demand for locally produced technological progress. Larger economies are
far more likely to support a local capital goods industry and are therefore
more likely to generate indigenous technological progress (James, 1985~.
Likewise, it has been argued that the rate of technological progress will be
positively affected by the number of researchers, which will increase with
the size of the total population (Phelps, 1980; Simon and Steinman, 1981~.
OCR for page 49
TECHNOLOGIES INNOV~ON ~ ECONOMIES OF SCOW
49
But these arguments are generally advanced at the global level, and one
must ask why a developing county would generate its own technological
progress rather than importing technology from developed countries. One
answer might be that die technology from developed countries uses much
more capital per worker than is appropriate in labor-abundant developing
countries. However, it is possible that the imported technology is in fact
more efficient in the sense Hat the productivity of both capital and labor
is higher, in which case the argument is undermined. Countries with larger
populations and therefore larger markets should, in principle, be better
situated to develop technology appropriate to local factor proportions. The
argument has been made in great detail that technological change in England-
in contrast to the United States-was historically guided in the direction of
saving capital rather Han labor, reflecting the relative scarcities of factors
in these countries (Haba~uk, 1962; David, 1975~. In many contemporary
developing countries, however, a variety of government policies distort local
factor prices so severely that there is no incentive to develop techniques that
exploit the relative abundance of labor. Such policies include overvalued
exchange rates and credit policies that favor industry and artificially reduce the
price of capital goods, particularly those imported from developed countries.
It should be noted, however, that the markets for which final production
is targeted may influence the choice of production technique. For example,
goods for high-income consumers, for use in the modern economic sector
of developing countries, or for export to He developing countries may
require relatively capital-intensive production techniques to ensure high levels
of standardization or quality (James, 1985~. For these reasons, most local
technology appears to mirror the factor proportions of developed countries,
with a few East Asian countries being He impressive exception (lames,
1985).
Similarly, higher national population densities do not appear to offer
manufacturing any advantages arising from reduced costs of infrastructura1
investment since what makers is not national density but rather urban
concentration, which today does not depend on overall density, although it
might have in He past (Boserup, 1981~.
Based on existing research, there is little reason to expect technological
progress in manufacturing to be favorably affected by greater population
size or density in any individual country, particularly given government
policies that are now common. James (1985), in a cross-national sample of
developing counties, found no statistically significant association between
the rate of industrial labor productivity growth (which reflects changes in
capital, He scale of production, and technology) and He population grown
rate from 1960 to 1970. Research in this area is in its infancy, and it would
be premature to rule out altogether the possibility of positive effects.
OCR for page 50
so
AGRICULTURE
POPUl~ON GROWTH AND ECONOMIC DEVELOPMENT
Because agriculture is dispersed and carried out in small units under
varying agroclimatic conditions, there are no national economies of scale
operating through the size of production units. However, it has been plausibly
argued that greater population density on agricultural land should favorably
influence infras~uctural investment in transportation, communications, iraga-
tion, markets, agricultural extension stations, repair shops, and so on, since
with denser populations each location can serve more people and therefore
have lower per capita costs (Boserup, 1981; Simon, 19773. Limited empirical
work supports these arguments (Boserup, 1981; Simon, 1975; Glover and
Simon, 1975; but see Evenson, 1984a, who sometimes finds negative effects).
Without such infrastructure, the transfer of modern agricultural technology
is difficult. For example, irrigation becomes profitable only after a certain
density has been reached (note, for example, the failure of many irrigation
schemes in suW5aharan Africa), but in some counties, it is a prerequisite
for adoption of many modem, high-yielding plant varieties. Consequently,
lower density agricultural populations that have not in the past invested
in irrigation may be less well situated to benefit from new agricultural
technology (Hayami and Ruttan, 1985; Pingali and Binswanger, 1985~.
It also appears to be even more true in agriculture than in manufacturing that
each region needs its own technology, suited not only to the relative supplies
of land, labor, and capital, but also to He local agroclimatic conditions.
Therefore, local research and development are even more important for
agriculture than for industry. More densely settled populations would appear
to generate a greater demand for such local research and be better able to
fund it (Pingali and Binswanger, 1985~. Very little empirical research has
been done, but Evenson's (1984b) analysis of data from northern India does
not support this argument.
It is useful to distinguish three different aspects of technological change:
first, change in the basic agrarian system in use, with each system employing
factors in different proportions; second, the direction of technological change,
in the sense that new knowledge tends to economize on either land or labor
within any given agrarian system; and third, the pace of technological change.
Examples of agrarian systems, running from least to most intensive use of
labor, include forest fallow, bush fallow, grass fallow, annual cropping, and
multicropping, each win its distinctive tools and over features. Agrarian
systems using the plow are often viewed as more advanced than slash and
burn, but they are not necessarily so: each system is most efficient at a
particular population density, and farmers have been observed to switch
from plow cultivation to slash and bum when density has declined. As
He population in an area becomes denser, more labor-intensive systems are
adopted if the population changes occur slowly enough so that the appropriate
OCR for page 51
TECHNOLOGICAL INNOVATION ANZ) ECONOMIES OF SCALE
51
complementary investments in infrastructure can be made and institutional
changes can occur (Rosenzweig et al., 1984~. Even if technology does not
change, returns to labor appear to decline at most quite gently with increasing
density, far more gently than they do when labor inputs are increased within
any single system (Boserup, 1965, 1981; Pingali and Binswanger, 1985;
Hayami and RuDan, 1985~. Declining returns to labor are often offset by
increased hours of work.
Within any agrarian system, it may be possible to substitute animal or
mechanical power for labor, and irrigation, fertilizer, or new seed varieties
for land. Ibis substitution is often effected by technological change. As
noted in our discussion of renewable resources, research reveals a close
association between population density and the labor intensity of technology,
an association that is consistent with the view that He substitution has been
historically quite responsive to differences in relative availabilities of land
and labor as reflected in their prices (Hayami and Ruttan, 1985; Pingali
and Binswanger, 1985~. Thus, although the evidence is not conclusive,
population growth and density apparently play an important role in directing
technological change in agriculture, in contrast to manufacturing, for which
technologies and their labor-saving bias typically seem less appropriate to
labor abundance (James, 1985~. Unfortunately, it is difficult to determine
empirically the direction of causation leading to observed associations. And,
as in manufacturing, government policies governing prices of inputs and
outputs also exert an influence, but in agriculture these are less dominant.
This review of the evidence suggests Hat population density strongly
influences the choice of agrarian system and the direction of technological
change. But there is nothing in these arguments to suggest that denser or
more rapidly growing populations are better off; rather, they show that the
choice of system and direction of technological change typically adjust to
the negative effects of higher density and more rapid grown.
These results raise the question of whether countries with denser populations
generate a pace of technological advance that gives them a net advantage
over those with less dense populations. Were are a number of reasons
why technological progress in agriculture might be more rapid in denser
populations. Some of these derive from the infrastructural advantages of denser
populations, which facilitate the flow of infonnation about new technologies
and, by increasing He possibilities for marketing output, also increase the
gains to, and incentives for, raising productivity. Denser populations may
also be better able to bear the fixed costs of agricultural research relevant
to an area's particular conditions. If such positive influences on technology
do occur over some range of densities, there might well be a point beyond
which furler increases were disadvantageous.
Analyzing a cross-sechon of 45 developing counties, James (1985) found
OCR for page 52
52
POPUl~lON GROWTH ANl) ECONOMIC DEVELOPMENT
that the rate of grown of labor productivity in agriculture between 1960 and
1970 was significantly positively related to the national population density in
1965, while productivity gains in manufacturing were not. While this finding
is based on a very rough analysis and should be regarded as vely.preliminary,
it is consistent with the view that density has nonnegligible positive effects
on technological advances in agriculture. However, EvensQn's (1984b3 study
of northern India found the negative effects of density on production grown
to be about twice as great as the positive ones. A number of other studies
have examined the relationship between population density in developing
countries and the rate of growth of output per capita or per worker, but very
little can be concluded from them. They all report a positive association for
at least some range of densities (Lefebvre, 1977; Simon and Gobin, 1980),
but in some studies He association becomes negative after densities of about
100 persons per square kilometer are reached.
CONCLUSIONS
In manufacturing, economies of scale exist principally at He urban level
and are exhausted at a moderate level of city size. Hence, there is no
significant relation between national population density and economies of
scale. Moreover, given a widespread dependence on imported technology
and He existence of international markets for many manufactured goods,
national population density offers little stimulus for technological progress in
manufacturing. We therefore conclude that slower population growth would
not have any negative effect on productivity in manufacturing.
In contrast, we find that the choice of agricultural technique is responsive
to population density. Economies of scale in agriculture are also likely to
occur, especially by spreading fixed costs in infrastructure and research over
a larger number of people. Although there is no conclusive evidence on
this point, Were are probably more direct methods for stimulating research
and development. It seems unlikely that the stimulative effects of increased
population density on agricultural productivity could more than offset the
effects of diminishing returns to labor (discussed under Question 2~. Thus,
for most developing countries, slower population growth is unlikely to result
in a net reduction in agricultural productivity and might well raise it.
Representative terms from entire chapter:
technological progress
