LESSON 1: DEMOGRAPHICAL PROBLEM

DEFINITIONS AND EXPLANATIONS

Main demographic indicators(Crude) Birth rate (BR): the number of (live) births per 1.000 people per year.

BR= No .birt h sPopulation

∗1.000

Nowadays this indicator goes from around 45‰ (in some African countries) to 8‰.

(Crude) Death rate (DR): the number of deaths per 1.000 people per year.

DR= No.deat h sPopulation

∗1.000

This indicator goes from about 15‰ (again, in some African countries) to 2-3‰ (in the Persian Golf States).

Natural increase (NI): the growth in population resulting from an excess of births over deaths.

NI = number of births – number of deaths

Changing birth and death ratePopulation change (“change” usually means increase) is produced by two

processes:

Natural change (NC): depends on the balance between birth rates (BR) and death rates (DR).

NC = BR – DRIf there are more births than deaths, population will increase.If there are more deaths than births, population will decrease.

Migration: is the movement of people into and out of an area.If there are more immigrants (in-comers) than emigrants (out-goers) there will be a gain in population.If the situation is reversed, there will be a loss in population.Net migration (NM) is the difference between immigrants (I) and emigrants (E).

NM = I – E

Total population changeTotal population change (TPC) is the sum of natural change (NC) plus net

migration (NM).TPC = NC + NM

Total fertility rateTotal fertility rate (TFR) is the average number of children born per woman in a

population. Nowadays this indicator goes from almost seven children per woman (in some African countries) to about 1,5 (in most western countries, among them Galicia and Spain).Replacement level fertility. Fertility required to keep a population at its current level. This means about two children per couple, 2,1 precisely.

Towards the Gross Domestic ProductOur goal, aim or purpose is the Gross Domestic Product (GDP), which is the

most important indicator in Natural Accounting. But before we must see some elemental concepts.

- The economic agents.o The public administrations (the state or the central government when

there are regions, local councils…).o The companies (firms).o The consumers (householders).

- The productive factors.o Land (natural resource)o Labouro Capital

- The productive sectorso Primary sector (agriculture, forestry, fishing).o Secondary sector (manufacture/industry, construction).o Tertiary sector (services*)

*Among them we have: Education Health services Wholesale and retail trade Public administration Information and communication Financial and insurance activities Transport Repair

Apart from the productive sectors, we also have:- The functional sectors

o Public sectoro Exterior sectoro Financial sector

Now, the production process is as follows: the companies (businessmen, employers…) acquire raw materials, energy, services, productive factors (namely, labour and capital) and then the production begins.Once finished, the outcome (output), called “goods and services”, is to be sold at the market.But, obviously, the productive factors (labour and capital) that take part in the production process don’t work for free, they aren’t NGO’s. So they are remunerated; in other words, they get incomes.The incomes received by workers are called “wages”.The incomes received by businessmen* are called “profits”.

*Also called “employees” or “entrepreneurs”.So, the process of the creation of goods and services is, at the same time, a process of creation of incomes for the productive factors (labour and capital).

Therefore, we can say that there are three crucial moments in the economic process:- Production (supply)- Income- Consumption (demand)

And there are three methods or ways to calculate the Gross Domestic Product (GDP).- Production (supply)- Income- Consumption (demand)

Definition: the Gross Domestic Product measures the total value (calculated in Euros, dollars, pounds or any other currency) of all final production in a country, throughout a year.

Another definition: the Gross Domestic Product is an indicator that simultaneously measures:- The sum of all economic output (gross value added).- The sum of all incomes (wages and profits).- The sum of all expenditures (consumption and investment.

The GDP can be calculated in the three ways already mentioned:- By adding up the value added by labour and capital when inputs purchased

from other producers are transformed into output (production way).- By adding up income and profits received form production of goods and

services (income way).- By adding up expenditures on goods and services, gross capital formation and

exports while subtracting imports (consumption way).

Now, let’s see the formula to calculate the GDP:- Gross Domestic Product at market prices

o Production: GDP = GVA (I,II,III) + NTo Income: GDP = CE + GOS + NT

o Consumption: GDP = FCE + GCF + E – I GVA = gross value added (the sum of all economic output). CE = compensation of employees. GOS = gross operation surplus FCE = Final consumption expenditure GCF = gross capital formation E = exports I = inputs

Now, let’s see a further explanation of some these items: Compensation of Employees. Is the total remuneration,

in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.

Gross Operation Surplus. Here we have all the incomes earned by the capital factor. Therefore not only profits but also interests, dividends, company savings and mixed incomes.

Final Consumption Expenditures. Ts the expenditure on goods and services that are used for the direct satisfaction of individual needs of members of the society (collective consumption or public consumption).Therefore, we have: FCE = IC + CC

Gross Capital Formation. It shows much of the new value added in the economy is invested rather than consumed.“Gross” means that the consumption of fixed capital (depreciation of fixed assets) is not deducted. Otherwise we would use the word “net”.

In theory we can calculate the GDP by any of these ways. But in real life the figures do not match exactly unless the country has reliable statistics.

So, while in Western countries the three methods are used, in Third World countries they work with the production method as it is less exacting (from the statistical point of view) than the two others.

The Gross National Product

Definition: Gross National Product (GNP) is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its productive factors (labour and capital) located abroad, minus earned by foreign productive factors located in that country.

GNP = GDP + NIPF**NIPF = Net incomes of productive factors.

NIPF = incomes earned by the national factors abroad – incomes earned by the foreigner factors within the country.

GNP measures the value of goods and services that the country’s citizens produced regardless of their location.

GNP is often contrasted with GDP. While GNP measures the output generated by a country’s enterprises (whether physically located domestically or abroad) GDP measures the total output produced within a country’s borders, whether produced by that country’s own local firms or by foreign firms.

Fixed capitalFixed capital is that portion of the total capital that is invested in fixed assets

(such as land, buildings, vehicles, machines and equipment) that stay in the business almost permanently, or at the very least, for more than one year.

Circulating CapitalCirculating capital includes short-lived items (that last less than one year) that

are used in production and used up in the process of creating other goods or services.This is roughly equal to intermediate consumption. Here we have, for instance, raw materials, intermediate goods and wages.

Consumption of fixed capitalCFC refers to a depreciation change against the gross income of a producing

enterprise, which reflects the decline in value of fixed capital being operated with.The idea is to replace those depreciated assets.Fixed assets will decline in value after they are purchased for use in production, due to:- Wear and tear.- Changed market valuation.- Obsolescence.

Thus, CFC represents a compensation for the loss of value of fixed assets to an enterprise.

The Net Domestic ProductThe Net Domestic Product is the Gross Domestic Product minus depreciation.

Therefore: NDP = GDP – CFC

The suma is applicable to other macro magnitudes:NNP = GNP – CFCNOS = GOS – CFC

Real GDP and Nominal GDPThese indicators lead us to the concepts of inflation and deflation.- Inflation is a rise in the general price level of goods and services in an economy

over a period of time.

- Deflation is a decrease in the general price level of goods and services in an economy over a period of time.

- Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).

- Normal GDP measures the value of output during a given year using the prices prevailing in that year.

- With the course of time the general level of prices tends to rise due to inflation (but may also fall, due to deflation), leading to an increase (or decrease) in nominal GDP even if the volume of goods and services produced is unchanged.

- Real GDP measures the value of output in one or several years by valuing the goods and services adjusted for inflation.

- We must keep in mind that according to the definition GDP “measures the total value…”.

Value = quantity (or volume) x price- So it may happen that GDP increase from one year to the next just due to the

rise of prices (inflation) and not due to an increase in production.- In this case we are before an increase in the nominal GDP but non in the real

GDP.

Example:Computers produced

x Price = GDP

2011 1.000.000 x 500 = 500.000.0002012 1.000.000 x 550 = 550.000.000

- Actually, in this case, the volume of goods and services produced is unchanged.- For measuring GPD growth year over year, real GDP is often used as it gives a

more accurate view of the economy.- To do so Real GDP is calculated using constant prices whereas nominal GDP

uses current prices.o Nominal GDP uses current priceso Real GDP uses constant prices

- The difference between the nominal GDP and real GDP is due to the inflation rate in market.

- The price level of final goods and services produced in an economy is measured by an implicit price deflator for GDP, the GDP deflator.

- So, the GDP deflator allows us to transform nominal GDP into real GDP.o GDP deflator = (nominal GDP / real GDP) x 100

Hence:o Real GDP = (nominal GDP / GDP deflator) x 100

- We can calculate both the GDP nominal growth rate (NGR) and the GDP real growth rate (RGR), although we are mostly interested in the RGR, as, again, is not affected by inflation.

- GDPNGRx = (GDPcurr.pr.x – GDPcurr.pr.x-1) / GDPcurr.pr.x-1 x 100- GDPRGRx = (GDPk.pr.x – GDPk.pr.x-1) / GDPk.pr.x-1 x 100- To calculate the rate of inflation

RIx = (IDx – IDx-1) / GDPx-1 x 100

Gross national disposable income (GNDI)GNDImp = GNPmp + NTNet transfers = current transfers received from the ROW – current transfers paid to the ROW

Measuring inflationApart from the GDP deflator we have the consumer price index (CPI), which is, by the way, much more known and popular.Definition. A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.The CPI is a statistical estimate constructed using the prices of 489 articles in 30000 establishments (shops, supermarkets, and so on) are analyzed.Something similar happens in the rest of the European Union (Harmonized index of consumer prices) and other Western Countries.The 489 articles we are referring to belong to the following twelve groups:

1. Food and non-alcoholic beverages2. Alcoholic beverages and tobacco3. Clothing and footwear4. Housing5. Furniture and household equipment6. Health7. Transport8. Communications9. Recreation and culture10. Education11. Restaurants, cafes and hotels12. Miscellaneous goods and services

Differences between GDP deflator and CPI1. While the CPI measures changes in the price level of a market basket of

consumer goods and services (so FCE, Final Consumption Expenditure) the GDP deflator also measures changes in GCP (Gross Capital Formation).Consumption = FCE + GCF + E – I

2. The GDP deflator reflects the prices of all the goods and services produced in the country whereas the CPI reflects the prices of all the goods and services purchased by the consumers (both natural and foreigners goods and services).

Three types of societies- Through the centuries and millenniums we can distinguish three types of

human societies, from an economic point of view:o The hunting and gathering societyo The agricultural societyo The industrial society

- The transition from one to another is marked by two outstanding (economic) revolutions:

o The agriculture revolution (circa 10.000 b.C.)o The industrial revolution (circa 1750 a.C.)

- The agricultural revolution brought about some crucial changes:o People was turned from nomadic into sedentaryo Population growtho Handwritingo Potteryo Calendaro Weavingo Malnutritiono Starvationo Epidemic diseaseso And, probably the most important thing: deep class divisions.

HISTORICAL DATA

Evolution on world population

Year Population (million)-500.000 1-10.000 5-4.000 15-3.000 1501 2501.000 2501.500 4501.750 8301.800 9001.900 1.6001.950 2.5001.999 6.0002.012 7.000

-----------------------------expected-------------------------------------------2.025 8.0002.043 9.0002.085 10.000

1.750 ≈ 800mx9 was the evolution in 250 years.

2.012 ≈ 7.000m

Throughout hundreds of thousands of years the dynamics of world population was marked by a basic feature:A very slow pace of growth, in the order of 0,06%, per year, what means that world population would duplicate itself every one thousand years approximately.Nevertheless, from the 18th century onwards (first in Western Europe) things change dramatically: world population rises continuously and at a speed never seen before, reaching its peak in the second half of the XX century.

We can distinguish three stages:- A first acceleration between 1750 and 1950.- A second acceleration (stronger) between 1950 and 1970.- A growing down from 1970 on.

It is advisable to have a look at the evolution from the geographical point of view. Here we can distinguish two great stages:- From 1750 to 1950 there is a faster increase of population in the Centre (which

goes along with industrialization).- From 1950 to the present time, we have a population explosion in the

Periphery and a slowing down or even stagnation in the Centre.

Therefore, from 1950 onwards changed the location of fast demographic growth. In only 50 years the population of Asia duplicated itself, Latin America’s trebled and African’s quadrupled.The demographic transition

Means the transition from high birth and death rates (traditional demographic regime) to low birth and death rates (modern demographic regime).

Birth rate Death rateTraditional regime 40 – 50 ‰ 30 – 40 ‰Modern regime 10 ‰ 10 ‰

Here (in the traditional regime) there was a scope for an important demographic growth that never took place due to three factors that drastically boosted mortality: famine, war and plague.

The demographic transition in the Centre (Europe)We can distinguish three stages:- Second half of the 18th century: mortality begins to decline.- End of 19th century – begins of 20th century: fertility begins to decline.- From 1960 onwards: a new balance between birth rate and death rate is

achieved at a lower level.

Factors that explain the decline of mortalityThey use to be linked to material welfare:- Rise of the standard of living (more reliable food, supply, quality and quantity

of food produced rises, products brought form America).- Progress in medicine, in health care (more hospitals, medicines, vaccines).- Improvements in personal hygiene.- Improvements in sanitation and drinkable water supply.

Factors that explain the decline of fecundity- Decrease in infant mortality.- Changes in the economic role of the children, that’s to say, there is a reversal of

the direction of integrational transfers (between fathers and children)(Caldwell).

- Improving status of women.- Women working in the labour market instead of working at home (doing

housework).- Quality substitutes quantity (Pressat).- Secularism- Consumerism- Use of modern contraceptives- High cost of housing- Emigration

The main consequence of the demographic transition is population ageing (many people over 65 years of age).

The demographic transition in the Periphery (3 rd world) This transition has some specific features:- Mortality decreased at much more speed.- Fecundity is higher.

Therefore:- Population grows more rapidly.

Now, the question is: which is the reason of this new situation?

Sri Lanka, 1946-48. After a campaign to eradicate malaria, organized by the WHO, life expectancy at birth raised from 42 to 54 years. Both Great Britain and France needed nearly half a century to achieve the same result (between 1880 and 1925).

The peripherical growth rate reached 2% yearly in the fifties and 2,5% in the sixties (20th century), while in the Centre never went beyond 1%.

During the seventies a crucial change took place. Institutions as the WHO or the UNESCO saw birth control as a way of helping to develop the third world.

So, although world population keeps on increasing since the 18th century, its rate of growth has been slowing down for the last forty years and is expected to continue doing so all along the 21th century.

Here is very important women emancipation (education as work outside home).

Today, regarding the demographic transition, there are three groups of countries:- The ones that are still in the second stage (most of them are Africans and some

from Asia, like Pakistan).- The countries that have already reached the third stage (Latin America, Middle

East, South Africa, some countries of East Asia).- The countries in the fourth stage (most of them are countries belonging to the

Centre).

The ten most populous countriesPeople’s (millions)Republic of China 1.350India 1.250USA 315Indonesia 250Brazil 195Pakistan 185Nigeria 180Bangladesh 155Russia 145

Japan 127

Urbanization- According to the UN Population Division in 2008, for the first time in history the

urban population equalled the rural population of the world and, from then on, the majority of the world population will be urban. The world population is expected to be 70% urban in 2050.

- The urban areas of the world are expected to absorb nearly all the population growth over the next four decades.Furthermore, most of the population growth expected in urban areas will be concentrated in the cities and towns of the less developed regions.

- Historically, the process of rapid urbanization firs started in today’s more developed regions. In 1920, just under 30% of their populations was urban, and by 1950, more than half of their populations was living in urban areas.

- Among the less developed regions, Latin America and Caribbean has an exceptionally high level of urbanization (78%), higher than that of Europe.Africa and Asia, in contrast, remain mostly rural, with around 40% of their populations living in urban areas.

- The world rural population is expected to reach a maximum of 3500 million in 2018 or 2019 (45% of WP) and to decline slowly thereafter, to reach 2800 million in 2050 (30% of WP).

- The world urban population is highly concentrated in a few countries.In 2007, three quarters of the 3300 million urban-dwellers on China, India and the USA accounted for 35% of the world population.

- Similarly, the increases in the world urban population are concentrated in a few countries, with China and India projected to account together for about a third of the increase in the urban population in the coming decades.In 2050, China will still have the largest urban population (1000 millions), followed by India (900 millions).

Cities (population) % (2007) No. Cities (2007) No. Cities (2025)<500.000 51500.000-1.000.000 10 460 5511.000.000-5.000.000 23 382 5245.000.000-10.000.000 7 30 48>10.000.000 (“megacities”) 9 19 27Total 100%

3 rd world urbanization and its problems - Lack of basic services:

o Drinkable watero Health serviceso Schoolso Electricityo Sanitation

o Proper houseso Pollutiono Noiseo Chaotic traffico Rubbish collection services

- Unemployment-marginalization (exclusion-crime).

Age structure of the populationThree fundamental groups:- < 15 years = child group- From 15 to 65 years = adult or economically active group.- > 65 years = old group- Some demographers go beyond, distinguish:

o From 65 to 80 years: “The young-old”o > 80 years: “The old-old”

Usually the child group’s population doubles the old group’s population. In very aged population (such as Galicia) happens just the opposite: the old group doubles the child group.Now the question is: ¿what we do mean by ageing?

Definition of ageingAgeing of population: a process in which the proportions of adults and elderly

increase in a population, while the proportions of children and adolescents decrease.Ageing occurs when fertility rates decline while life expectancy remains

constant or improves at the older ages.

Dependency indicatorsWe must bear in mind that, mainly in the Western countries, the adult group

supports financially the other two (both the child group and the old group).That’s why is very important to know the following dependency indicators.- Total dependency ratio = (number of people aged 0-14 + number of people aged

65 and over) / number of people aged 15-64. The result is multiplied by 100.- Child dependency ratio = number of people aged 0-14 / number of people aged

15-64. The result is multiplied by 100.- Aged dependency ratio = number of people aged 65 and over / number of

people aged 15-64. The result is multiplied by 100.

The “old-age” support ratio- The old-age support ratio is the number of persons aged 15 to 64 years per

person aged 65 years or over.- This ratio has been falling in tandem with population ageing.

- Some developed countries are facing extremely low old-age support ratios, for instance Germany, Italy, Japan, Sweden or Spain have only three working-age persons for each older person (Galicia less than three for 1).

Population pyramids- A population pyramid, also called an age pyramid, is a graphical illustration that

shows the distribution of the age groups in a population. It has the shape of a pyramid when the population is growing.

- It typically consists of two back-to-back bar graphs, with the population marked on the X-axis (abscissas) and age on the Y-axis (ordinates), one showing the number of males and one showing females in a particular population in five-year age groups (also called cohorts).

- Males are conventionally shown on the left and females on the right, and they may be measured by raw number or as a percentage of the total population.

- Population pyramids are viewed as the most effective way to graphically depict not only the age and sex distribution of a population but also some of the main events that happened to that population (babies-booms, ageing, wars...).