European Journal of Scientific Research ISSN 1450-216X Vol.31 No.3 (2009), pp.491-499 © EuroJournals Publishing, Inc. 2009 http://www.eurojournals.com/ejsr.htm
Demographic Transition and Economic Growth in Pakistan Shahzad Hussain Corresponding Author Department of Economics Bahauddin Zakariya University, Multan, Pakistan E-mail:
[email protected] Tel: + 92 (0) 61 9210052, 54; Fax: + 92 (0) 61 9210098 Shahnawaz Malik Department of Economics, Bahauddin Zakariya University Multan, Pakistan Tel: + 92 (0) 61 9210052, 54; Fax: + 92 (0) 61 9210098 Muhammad Khizar Hayat Department of Economics, Bahauddin Zakariya University Multan, Pakistan Tel: + 92 (0) 61 9210052, 54; Fax: + 92 (0) 61 9210098 Abstract The economics of demography provides best understandings to the policy makers to set their priorities for future planning. Demographic transition also helps in creating policy environment that takes maximum advantages of demographic potential of the country. This paper empirically explores the association between demographic variables and economic growth in context of Pakistan for period 1972-2006, using time series econometric technique. We took a point of glance of demographic transition in Pakistan and suggest that demographic transition has major impact on economic growth. The understanding of the demographic transition mechanism is the key to make future plans. Changes in family structure, the status of women and children and the way people work all provides a powerful narrative in which policies can be framed. Keywords: Fertility, Infant Mortality, Population Growth, Economic Growth JEL Classification Codes: J11, J13, I12, O40
I. Introduction It is one of the uncontroversial debates that economic growth and development objectives can not be achieved without improving skills, energies and potentials of the people. It matters a lot in development process that the people of a country young or old, living alone or in extended families, how do population changes? Will the population be productive in future or not? It can be said that objectives of the development of any country are in the hands of its people. The understanding of the demographic changes has great importance in development era because it provides a powerful predictive tool through which the trends of future can be viewed easily. Demographic changes provide beneficial conditions for development, offering a country the chance to
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set out on a path of rapid growth (Bloom et al, 2001). Demographic changes also provide best understandings about the challenges of future. Demography can help the policy makers to set their priorities for future planning and to create a policy environment that takes maximum advantages of demographic potential of the country. This paper has main objective to empirically examine the impact of demographic variables on economic growth of the Pakistan economy for the period 1972-2006. The rest of the paper is structured as follows. Next section has brief explanation of demography and economic growth in Pakistan. Related work has been reviewed in section III. Section IV deals with Data and Methodology. Results of the estimations are reported and discussed in section V. Final section has concluding remarks with some policy suggestions.
II. An Overview of Demography and Economic Growth in Pakistan a). Total Fertility in Pakistan Pakistan with a population of 165 million in 2006 is the seventh populous country of the world. Pakistan experienced a continuous increase in its population growth rate because of sustained high fertility and declining mortality. Currently population growth is around 2, one of the highest population growth rates in the world. In Pakistan, the contraceptive prevalence is still low and fertility rate is 4, which is among the highest in the world. In the 1970,s and 1980,s Pakistan did not experience any significant change in its fertility rate, which remained around 6.5. In the 1990,s a definite decline in fertility rate of Pakistan can be seen. It was the first time in the first time in the history of Pakistan that Fertility Rate in Pakistan fell below six. After 1990,s there is a declining trend in the Fertility rate of Pakistan. Average women in Pakistan still bear the burden of four children if she survives and completes her reproductive periods. Figure 1: Trends in Total Fertility Rate in Pakistan (1972-2005)
8 7 6 Total Fertlity Rate 5 4 3 75
80
85
90 Years
95
00
05
Sources: Pakistan Demographic Survey (various issues) Pakistan Economic Survey (various issues)
b). Infant Mortality in Pakistan
Pakistan has experienced a considerable decline in the Total Fertility; Infant Mortality remained high at 82 per thousand live births. The major reasons for this high rate of this Infant mortality rate are
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diarrhea and Pneumonia. The other reasons for the slow decline in Mortality in Pakistan are perhaps the Phenomenon of repeated pregnancies and births, which is closely connected with the health and mortality rate of infants, children and mothers. The decline in Infant mortality has been slowed when compared with other South Asian countries. Figure 2: Trends in Infant Mortality Rate in Pakistan (1972-2005) 130 120 110 Infant Mortality Rate 100
90 80 70 75
80
85
90 Years
95
00
05
Sources: Pakistan demographic survey Population Growth Survey (PGS) Pakistan Economic Survey (various issues) United Nations Statistical Division World Population Prospects: The 2004 Revision. Dataset on CD-ROM. New York: United Nations
c). Population Growth Rate in Pakistan
Pakistan is one of the 10th countries which population is in excess to 100 million and the 7th populous country of the world. According to the projections of the United Nations, Pakistan will become the 3rd populous country of the world by the year 2050. Pakistan has started its Family Planning Program in 1960,s but it did not show any remarkable role in declining the population growth rate. Pakistan’s population has grown at an average of 3 percent per annum since its independence till 1990, s. in 1980,s, we experienced a high population growth rate ( around 3.5 ), which can be result of declining poverty, and declining Infant Mortality rate. After 1990,s there is a downward shift in population growth rate and now the population growth rate is below 2. It may be noted that fertility declines follows drop in mortality with some lags,. Pakistan continues to maintain a relatively high rate of population growth mainly due to its broad-based age pyramid, declining mortality, recent downward trend in infant deaths and an increase in life expectancy at birth.
Demographic Transition and Economic Growth in Pakistan Table 1:
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Population Growth Rates in Pakistan
Period 1970-1975 1975-1980 1980-1985 1985-1990 1990-1995 1995-2000 2000-2005 Source: World Population Prospectus: 2006 Revision Population Database.
Population Growth rate 2.74 2.97 3.63 3.47 2.46 2.44 1.82
d). Growth Rate of Labor
Pakistan is on the favorable end of the demographic transition. In the next few decades there would be a massive influx of people in the working age group (around 60million people). This trend can already be seen as over the last decade, the proportion of working age cohorts has increased from 53 percent in FY 86 to 56 percent in FY 03. The growth rate of labor has a fluctuated trend. In 1986 and 1997 growth rate of labour were high i-e 5 and 7 respectively. After 1986 till 1996 we can see a declining trend. After 2000 growth rate of labour is increasing. Figure 3: Growth of Labor Force in Pakistan (1972-2005) 8 7 6 5 Growth Rate of Labor Force 4 3 2 1 0 1975
1980
1985 1990 Years
1995
2000
2005
Source: Pakistan Economic Survey (various issues) Economic Growth in Pakistan
Pakistan has experienced a fluctuated economic growth. In the early 1970,s there is a downward trend in the economic growth of Pakistan due to political instability and aftereffects of 1971 war. Then Pakistan experienced a respectable growth rate in the late 1970,s and till 1988, due to consistent economic policies and afghan War. After 1988 again there is a declining trend in GDP growth rate, which is due to political instability, inconsistent economic policies of political governments and the preference of personal political interests over national interest. After 2000 there is a increasing trend in GDP Growth Rate.
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Shahzad Hussain, Shahnawaz Malik and Muhammad Khizar Hayat Figure 4: Trends in GDP Growth Rate in Pakistan (1972-2005) 10
8
6 GDP Growth Rate
4
2
0 75
80
85
90 Years
95
00
05
Source: State Bank of Pakistan
III. Literature Review Many researchers contributed to analyze the relationship between demographic and economic variables using time series as well as cross sectional data in different studies. The study reviews some of the studies available on the subject and found mixed evidence. Schultz (1985), used time series data (18601910) of Sweden, has shown that a 25 percent decline in Fertility in Sweden was due to a 50 percent reduction in child Mortality. Some researchers empirically examined the causal association between demographic and economic variables. Yamada (1985) using a sample of developed and less developed countries has showed that infant mortality and fertility are jointly determined. According to him, a decline in infant mortality that is due to an increase in per capita real income causes a subsequent decline in fertility. Rostow (1990) uses cross- section data from seventy-six countries and finds that birth and death rates are negatively correlated with per capita GNP. Hondroyiannis and Papapetrou (2002) using annual data for the period 1960 to 1998 for nine European countries (Germany, France, Italy, United Kingdom, Spain, Ireland, Netherlands, Finland and Sweden) has shown that in low mortality economies (industrial) reductions in infant mortality will decrease fertility. In another study, Hondroyiannis and Papapetrou (2003) statistically estimated the link among the fertility choice, infant mortality rate, marriage decision, real wage and per capita output for Greece for the period 1960-1998. A decrease in Infant Mortality Rate caused a reduction in fertility Rates in the long run, taking into account economic performance and labor market. Furthermore, increase in real wages decreased Nuptiality and fertility. The results of Vector Error-correction Models and Impulse Response Function show that fertility changes should be considered as endogenous to infant mortality, the labor market and growth process. Hondroyiannis and Papapetrou also examined the existence of relationship among wages, interest rate, fertility choice and output for the period 1960-95 for the US economy. There is no long run relationship among these variables but when VAR model, Variance Decomposition Analysis and Impulse Response Function were employed, the results supported the endogeniety of fertility choice and proposition that real wages, long term real interest rates and out put growth are related to changes in fertility choice.
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Kelley and Schmidt using panel data of three growth periods (1960-1970, 1970-1980, 19801990) of 89 countries (with populations exceeding 1 million in 1960) has shown that the rate of population growth does not appear to have a notable impact on per capita output growth at least in the 1960s and 1970s. Climent and Meneu (2003) investigated the relationships between demographic and economic variables for Spanish economy for the period 1960-2000. Bivariate Granger Causality has been examined to look short run relations. The results from the multivariate causality analysis and the Generalized Impulse-Response Function show that total fertility responds directly to GDP and Infant Mortality does not cause total fertility. Alam, Ahmed and Butt (2003) analysed the dynamics among fertility, family planning programmes and female education for Pakistan over the period 1965-1998. the results are found to be consistent with theoretical statements that maintain that although in the long run the sufficient condition for fertility decline may be the result of complex dynamic interaction with planned family planning and significant socio-economic structural changes.
IV. Methodology and Data Issues The impact of demographic variables on economic growth has been explored in the context of Pakistan for the period 1972-2006. The data on demographic variables has been obtained from International Financial Statistics, World Bank, Pakistan Economic Survey (various issues), Pakistan Demographic Survey (various issues), Labor Force Survey (various issues), Population Growth Survey (various issues) and World Development Indicators. Data on Gross Domestic Product (GDP) has been retrieved from State Bank of Pakistan. First of all, the problem of stationarity has been solved through employing the unit root test. In this case Augmented Dickey-Fuller test has been applied to variables. This test has been performed at level as well as at first difference. If the all the series are found to be integrated of same order, test for co-integration can be employed and if the series are not found to be integrated of same order, the relationship can be checked through employing usual Ordinary Least Square method. The model has the following form: GDPG = α0 + α1 (IMR) + α2 (TFR) + α3(WR) + α4(GL) + α5(PG) + εi Where GDPG is Gross Domestic Product Growth rate, IMR is Infant Mortality, TFR is Total Fertility Rate, WR is Wage Rate, GL is Growth of Labor Force and PG is Population Growth rate. Demographic changes starts with fall in mortality which improves the health status of the people. The most significant impacts are on the health of children, with falling levels of infant mortality leading to a short-lived increase in family size. The demographic transition is not completed at fertility decline. As parents realize that newborn babies are much more certain to survive to adulthood, they choose to invest more in fewer children (Bloom et al, 2001). It reduces the growth rate of population. Wage rate also get the respectable figure as growth rate of the population starts to reduce. Rapid population growth also increases the labor force.
V. Empirical Results Augmented Dickey-Fuller test has performed to test the unit root hypothesis to all variables. The results are reported in table 2 and 3. According to the results, all variables are not integrated of same order. GDPG and GL are stationary time series at level when checked with intercept and with trend and intercept. All other variables, IMR, TFR, WR and PG are integrated of order one i.e. I (1) when checked with intercept and with trend and intercept both.
497 Table 2:
Shahzad Hussain, Shahnawaz Malik and Muhammad Khizar Hayat Augmented Dickey-Fuller Test with Intercept
Variables Level GDPG -4.59 IMR -1.89 TFR 0.54 WR 2.97 GL -4.03 PG -0.41 Source: Authors calculations using E-views 3.1
Table 3:
1st Difference --7.09 -6.46 -3.55 --7.30
Conclusion I(0) I(1) I(1) I(1) I(0) I(1)
Augmented Dickey-Fuller Test with Trend and Intercept
Variables Level GDPG -4.83 IMR -3.03 TFR -1.89 WR -1.51 GL -4.05 PG -2.82 Source: Authors calculations using E-views 3.1
1st Difference --6.98 -7.22 -4.19 --7.64
Conclusion I(0) I(1) I(1) I(1) I(0) I(1)
OLS methodology has been used to check the impact of demographic variables on economic growth. Results of estimations are reported in table 4. IMR is significantly related with economic growth. The evidence suggests that reduction in mortality will foster economic growth. TFR has also significant and negative impact on GDP growth rate. As the rate of fertility continues to fall, there will be increased opportunities for economic growth. WR is positively and significantly related with GDPG. Increase in wage rate will be resulted an increase in economic growth. GL is negatively related with GDPG. It may be due to the fact that the economy is not absorbing the working age population into productive employment. PG is positively related with GDPG and significant at 5% level. Moreover, the model is good fit as indicated by the value of F-statistics. The value of R-square implies that about 40% of the total variation in GDPG is explained by the demographic variables included in the model. In addition, the problem of autocorrelation has been removed by using Auto Regressive Moving Average (2, 2). Demographic transition can have significant effect on the growth of the economy of the country. Health status of the country prompts the demographic transition but its maintaining is more important. It is one of the most important keys to success because societies with better health status are more likely to prosper. It is also fact that healthier and long-lived populations are more productive, lose fewer working days, have better incentives to invest in human capital. Reduction in the mortality rate of the children is proper indicator of the health status of the country. Reducing fertility will enrich the quality of human capital and change the demographic situation of the country. Increase in wage rate has good effect on the economy and on the lower population group. A growing proportion of people of working age will have positive effect on the economy only if they can absorbed into productive employment. The proper utilization of healthy and educated work force is an engine for economic growth. Absorbing a large part of population into productive workforce is great challenge for a developing country especially with challenging unemployment problem and with economy in recession. So, the challenges of demography have great effect on the society. Changes to family structure, the way people work and status of children and women will have great and immediate impacts on the lives of the people.
Demographic Transition and Economic Growth in Pakistan Table 4:
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Estimation Results Dependent Variable: GDPG Sample: 1972-2005
Variables Coefficients Standard Error Constant 7.0514 0.7332 ΔIMR -0.1210 0.0441 ΔTFR -3.0639 1.3384 ΔWR 11.2595 7.0232 GL -0.3779 0.1785 ΔPG 2.7708 1.3723 AR(2) -0.3492 0.1772 MA(2) 0.9035 0.0719 R-squared 0.3961 F-statistics Durbin-Watson stat. 2.0680 Prob. (F-statistics) Source: Authors calculations using E-views 3.1 Note: *, ** and *** indicate the level of significance at 1%, 5% and 10% respectively.
t-statistics 9.6174 -2.7489* -2.2892** 1.6032*** -2.1166** 2.0191** -1.9698 12.5573 2.1556*** 0.0778
VI. Conclusion and Policy Implications The paper has the central objective to empirically check the impact of demographic variables on economic growth in the context of Pakistan economy for the period 1972-2006. The results of the estimations suggest that reduction in infant mortality and total fertility will help in accelerating the pace of economic growth in positive direction. Increase in wage rate has positive impact on economic growth. Growth of labor force has not positive effect on economic growth. Demographic transition is definitely resulted into massive labor force which can not be absorbed into productive employment. The evidence also suggests that population growth fosters the economic growth. Rapid population growth and increasing population density stimulate technical change and institutional innovations. Larger populations are also able to enjoy greater economies of scale. Pakistan has a great challenge of demographic transition which has major impact on the whole society. The understanding of the demographic transition mechanism is the key to make future plans. Changes in family structure, the status of women and children and the way people work all provides a powerful narrative in which policies can be framed. Education and health of the poor segment of the society should be on top priority because these have major role in the process of demographic transition.
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