The short answer appears to be “no”.
Much of the debate around the appropriate immigration policy for New Zealand seems to have as a sub-text (implicitly or otherwise) a sense that New Zealand population is just too small, and that if only we had more people we would be richer (per capita) and more productive. Those who run, or rely, on this line rarely seem to engage with the estimates that New Zealand’s GDP per capita was at its peak, relative to incomes in other countries, at a time (around 100 years ago) when our population was about a quarter of what it is now. (Of course, the population of other countries has also grown since then, but in most advanced countries the population growth rate has been much slower than in New Zealand – the UK had about 45m people 100 years ago and about 65m now.)
In their recent report in support of New Zealand’s immigration policy, the New Zealand Initiative joined the group of those arguing that a larger population would be good for New Zealand’s per capita income and productivity.
I wrote about this point in a post back in 2015, in which I observed
I’ve long been fairly sceptical of that proposition. A casual glance around the world suggests no very obvious relationship. The United States and Iceland co-exist, and Japan and Singapore. At the other ends of the income spectrum, India and Bhutan, and Brazil and Costa Rica. There are all sorts of arguments advanced around the economics of agglomeration, and that analysis seems to work quite well in describing what happens within countries. But it does much less well in describing economic performance across countries. And as I’ve pointed out to people previously, if the real economic opportunities in big countries were so much superior to those in small countries, large countries would tend to have (more high-yielding projects and) higher real interest rates than small countries. But they don’t.
Over recent decades we’ve also seen many more smaller countries emerging, presumably because the people in those places concluded they wouldn’t pay too much of a price to be independent.
In the earlier post, I included some scatter plots suggesting that there was basically no relationship at all between the size of country and the subsequent growth in its real GDP per capita or productivity (real GDP per hour worked). In this post I’m looking at much the same relationships, but this time just using the Conference Board’s Total Economy Database, which starts in 1950.
One of the challenges in any work in this area is that people tend to flow to rich and successful countries. Indeed, plausibly in a successful fast-growing country, people might even be willing have more children on average. The simplest way to correct for that is to take the population level at some historical point in time and then look at per capita growth subsequently. Here is a chart for 33 relatively advanced (and relatively free) economies showing population in 1950 (in logs) and total percentage growth in real GDP per capita over the subsequent 65 years to 2015.
The simple regression line is still slightly downward sloping even if the very fastest growing countries (Singapore, Taiwan and South Korea) are excluded. But note that I’m not arguing that higher populations are necessarily bad for subsequent growth, simply that there is little evidence (none in the simple bivariate relationships) that larger populations are good for growth. Small and large countries seem able to successfully, and prosperously, co-exist.
What about more recent periods? There has been a line of argument – associated in the context of the New Zealand debate with Philip McCann – that these issues have become much more important in recent decades as the nature of the global economy has changed (more reliance on ideas, trade in services etc).
Here is the same chart for the 25 years since 1990.
Take out the outlier (Singapore) and the bivariate regression line still slopes slightly downwards.
And for the same countries, here is the relationship between total hours worked in 1990 and subsequent growth in real GDP per hour worked.
And still no positive relationship.
My sample of countries in these charts excluded the countries of the former eastern bloc. Most of them have relatively small populations, and most have – not surprisingly – done quite well in the last 25 years or so, once the shackles of communism were removed. The quality of the data from 1990 might also be in some question.
But for completeness, here are two charts from 1990 to 2015 with various of the eastern European countries added in (those now in the OECD and/or the EU). This one for all the countries.
And this one – as much for visibility as anything – just excluding Singapore, South Korea and Taiwan.
There doesn’t seem to be any simple evidence that, across the relatively advanced world as a whole, a higher starting population has helped make for stronger subsequent growth in real GDP per capita or real labour productivity.
I concluded my earlier post this way
Charts of this sort are, of course, not conclusive. Lots of other things are going on in each country. In an ideal world, one would want a much fuller and formal modelling of the determinants of growth. But equally, the absence of a positive relationship between the size of the country and its subsequent growth shouldn’t be surprising, and there have been previous formal research results suggesting a negative relationship.
Of course, perhaps New Zealand is an exception. Perhaps real per capita incomes would really be materially lifted if we had many more people here, even though there has been no such relationship across the wider range of advanced countries in history. But in a sense we have been trying that strategy for 100 years and there is no sign that it has worked so far. Very few relatively advanced countries have had weaker real per capita growth than New Zealand in the last 100 years (only places like Argentina and Rumania).
Perhaps the next 25 or 100 years would be different. But I think the onus is now on the advocates of policies to bring about a bigger and more populous New Zealand to demonstrate where and how the gains to New Zealanders from a much larger population are occurring?
At that stage, I was putting less emphasis than I now would on two (probably related) factors that make it even less likely that such a beneficial relationship would exist for New Zealand even if it did – and these charts suggest it doesn’t – for other advanced countries:
- our extreme distance from other countries (markets, suppliers, value-chains, competitors etc) in an era when, if anything, personal contacts seem more important than ever, and
- our continued very heavy reliance on natural resources – and ability to apply new and better skills to those resources. Those resources are in fixed supply, our heavy reliance on such natural resources is now quite unusual (it isn’t so for most OECD countries), and there is little sign of the economy successfully gravitating away to any significant extent from a reliance on natural resources.
Playing to our strengths, and maximising the prospects for New Zealanders, looks as if it would be much better-served by an approach that didn’t seem determined to drive up the population, regardless of the 100 years (or 70 or 25 or whatever period you like) in which there has been no evidence that a larger population is enhancing the economic well-being, or productivity, of New Zealanders.
And here is one last chart, for completeness, including all the relatively advanced countries – eastern European and Asian alike – and showing population in 1990, and subsequent growth in real GDP per capita.
Still no sign of that vaunted upward-sloping relationship.