The present value of population growth in the western world

Abstract In conventional steady-state growth theory with technical progress exogenous, faster population growth causes lower consumption. This conclusion has influenced national policies. With technical progress endogenous, however, higher population growth causes higher consumption. Steady-state equilibrium analysis is not appropriate for policy decisions, though. Rather, appropriate analysis compares two or more growth rates beginning from equal initial positions, with comparison of the present value of consumption streams per person. In the paper the supply of and demand for knowledge is first analysed and the most plausible technical progress functions are derived. Various population growth rates are then simulated with different specifications and parameters. With virtually every variant, faster population growth shows better consumption with discount rates up to between five and ten per cent above the long-run adjusted riskless rate. With pensions included in the analysis, faster population growth would seem even more beneficial. Even at very high discount rates, lower population growth rates imply present values only a little higher than those for higher population growth rates. The advantage is overwhelmingly with higher population growth in this growth-theoretic analysis.