Population size and GDP per capita: US states

There have been a few posts here (here, here, and here) in the last week or so around the issue of population size and GDP per capita –  not because my prior is that there is any such relationship but (a) because I think there isn’t, and it is worth occasionally illustrating that across countries, and (b) because even some officials in the New Zealand government still appear to believe that our (small) size is a material element in the story of what holds New Zealand back.   There are arguments why, in theory, a larger population might result in better long-term economic performance (higher productivity), but whatever the merits of those arguments they seem to have been outweighed by other factors.  In the world we currently live in, the average big country is no more economically successful than the average small country, and that is so whether one throws all 190 countries into the mix at once, or looks only at advanced countries, only at European countries,  only at moderately-sized countries (eg excluding China and India) or whatever.  And one might imagine a plausible story in which economic success might have led to more population (migration or natural increase) rather than the other way round.

But what does the picture look like for US states?  Across all 50 states (one dot per state) here is the cross-sectional picture.

US states 2

And again, no obvious or statistically significant relationship.   In fact, to make the dots a bit easier to see, I left off the (non-state) District of Columbia which with about 600000 people has per capita GDP of about $160000.

The US case is interesting because –  unlike the situation with comparisons across individual countries –  there is no legal obstacle in the way of US citizens (and residents) moving within the country (across state lines) to pursue opportunities.   In that sense one might have (actually I initially did) expected to see more populous states also being more economically successful, if only because of internal migration.  But the relationship between population size and GDP per capita seems about as weak across US states as it does across countries.

I wouldn’t want to make anything much of these US state comparisons –  I just did them because the data were there, and having dug it out I thought I’d share it.  After all, in various places, big metropolitan areas straddle two or more states (New York is the best known example).   Then again, there is more policy similarity across US states than there is even across member states of the EU –  so a few more things are help constant when one looks at the simple scatter plot this time.

Whatever the theoretical arguments, a bit of history suggests we shouldn’t be surprised at the lack of any sustained relationship between population and economic performance.  After all, at its 14th century peak –  as probably the richest place in Europe – Florence is estimated to have had a population of fewer than 100000 people.

 

29 thoughts on “Population size and GDP per capita: US states

  1. Mainland residents top million
    The South Island’s population has topped one million for the first time, driven largely by migrants.
    In a report released yesterday, Statistics New Zealand said an estimated 1,008,400 people lived in the South Island as of June 30 — an increase of 9600, or 1 per cent, from a year earlier.
    Net migration has accounted for two-thirds of the South Island’s population growth since 2001. By comparison, less than half of the North Island’s growth was due to net migration.
    Christchurch economist Robin Clements hailed the one million population as a benchmark and an achievement for the South Island.
    “When you get to a certain size you can generate your own growth and rather than having to export — whether that be to Auckland or Australia — as local growth gets bigger, it can sustain local companies that can grow without having to go offshore,” he said.
    He said population growth drove economic growth.
    “As more people require houses to live in, the construction industry grows, you have to outfit those houses — building, flooring and furniture benefit.
    And people have to live, so conduct economic activity, whether it’s buying cars, going to the supermarket — that’s the key thing,” he said.

    Disclaimer – worked for UDC which is into property development.

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    • Paul Spoonley on RNZ said “there are a few economists who think immigration isn’t beneficial but the large majority do”. He failed to mention that a large majority also work in industries that benefit from immigration (such as banks)?

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      • Beneficial to immigrants – well of course or else they return home.

        Beneficial to country – depends on salaries and how they integrate. Living in the 2nd generation Benali colony of Spitalfields East London I never met 50% of their population – only the men went to the shops or political meetings and the women were kept at home. Only an economist can explain how that was good for either me or the family next door.

        Beneficial to country of origin – sometimes when money is sent home. And sometimes not as per my wife’s 3rd world country that has exported to my knowledge pilots, doctors and engineers to NZ (and my wife) and all four would be an asset to any country and represent a significant educational investment by a poor country.

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    • Robin – who is a former close colleague of mine – has spent most of the last couple of decades working for the Swiss bank UBS (as NZ economist). UBS doesn’t engage in housing lending in NZ (or, as far as I’m aware, much other domestic lending).

      (Of course, I disagree with the substance of his quote here. Another way of putting that is that the things he is highlighting are short-term demand/activity effects – the sort of stuff market economists and the RB tends to focus on (and like me Robin was a former forecasting manager at the RB) – rather than the more important longer-term productivity effects. Mostly, a country or city doesn’t get rich by building each other houses or supermarkets, whatever the short-term effects.)

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      • Queenstown is an enigma. Mike Hosking raves about it as he is met by VIP transport and spirited off to an exclusive hideaway, or maybe someone from india or China think it is an idyllic village. Likewise some Americans and Europeans find it vibrant. What can you conclude about it. Like Auckland many New Zealanders are now excluded from living there. If we were to connect a gauge to it what would we be measuring? Crocodile Dundee observed that New York must be a great place as “so many people want to live here” . The reality is that the vested interest chooses what to measure (I think)?

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    • Spoonley says “there are a few economists who think immigration isn’t beneficial but the large majority do

      I disagree with Spoonley – the headline looking for some ears

      Who is this large majority – from what I see the large majority of economists are remarkably silent – and that’s a problem itself – never hear from them, other than the other human headline Shamubeel Eaqub

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      • See sorethumb’s reference to NZIER – New Zealand Institute of Economic Research – now we know where all Spoonley’s economists are reclining – including Julie Fry’s co-author Peter Wilson who is New Zealand Institute of Economic Research principal economist. It might well be recalled that Shamubeel Eaqub used to be NZIER’s principal economist, but, no longer a part of the team, having gone solo is now referred to as “superstar economist Shamubeel Eaqub” by Spinoff

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      • This is a response to various people being critical of Julie Fry, Peter Wilson, and NZIER. This book began when NZIER provided a pretty modest amount of funding (from their “public good” programme) for a short article. Beyond that, at least as I understand it, the authors have done the rest on their own time. Having read the full draft of their book, and talked to them both (but not yet read the final version) I don’t see either of them as champions for indiscriminate large scale immigration in NZ. If anything, some pro-immigration worry that the Wilson/Fry approach is an attempt to say “well, even if there are some small econ benefits from immigration, perhaps there are other reasons – including issues around Maori perspectives – to wind back the numbers anyway”. As I said in an earlier comment, i didn’t find the early version of the framework as particularly compelling, but I don’t want to get into the substance until I’ve read the book and can comment in a more substantive way.

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  2. Same subject – different side – Out in the open in Australia
    Raw debate among the politicians – immigration is necessary to keep up the illusion of growth
    http://www.canberratimes.com.au/federal-politics/political-news/the-secret-budget-rules-making-it-hard-to-cut-australia-s-immigration-intake-20180413-p4z9jp.html

    Extract :- Any move to cut Australia’s migration intake would force the Turnbull government to breach its own budget rules or find billions of dollars in new growth measures, despite doubts high immigration levels benefit the economy

    They need the growth

    Liked by 2 people

  3. On a discussion on a Canadian Green Party site [no longer on line] I found this:

    Green Parties around the world share common values as expressed in the Charter of the Global Greens.”

    In that Global Charter, the following language appears in the section on Sustainability:

    “We believe that to achieve sustainability, and in order to provide for the needs of present and future generations within the finite resources of the earth, continuing growth in global consumption, population and material inequity must be halted and reversed.” (Emphasis mine.)

    And yet, here we have the Canadian Green Party actively promoting more population growth, through immigration, in a very high consumption country. This is accompanied by what I perceive to be a considerable amount of denial and whitewashing (greenwashing?) from some party members.

    Reading GPC policy and the comments by some here, it appears that halting and reversing population growth is absolutely essential for other countries, but not for Canada. And it appears that total Canadian consumption can just continue to grow willy-nilly as long as total global consumption growth is somehow magically halted and reversed. Not in my back….country.

    Given the inconsistencies, and given the lack of differentiation from other Canadian political parties on these critical issues, I have to wonder that Greens wonder why there is not more support for the party in Canada.

    //
    You need to note 2 things: this statement refers to growth in global population. And immigration is not growth of global population; it is movement of population from one place to another. No matter how many times you assert to the contrary, immigration is not population growth. It is movement – migration.

    Is this how the coalition partner blends social justice with ecological wisdom?

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  4. Michael there is empirical data (not just theory) that shows that the free movement of people between cities in the US has in the past increased productivity and decreased inequality of incomes between US States. But this effect is decreasing due to rising barriers of entry -in particular by restrictive housing policies and high house prices.

    David Schleicher a Yale law professor writes about barriers of entry here.
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2896309

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    • You wouldn’t want to live in Tokyo. There are next to no parks and you can’t sit down. If you grow up in it you don’t know any better but let a toddler choose lawn or next to no space: my friends little daughter cried as she re entered their apartment after staying at my house in Christchurch.

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    • If I recall the world champion mayor was the mayor of Bogata. Unfortunately the SJW spoilt his project by their inclusiveness (too many people).

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  5. I have an article about how to improve NZ’s urban performance that was republished by Interest.co.nz
    https://www.interest.co.nz/opinion/93194/brendon-harre-sees-many-reforms-new-zealand-could-and-should-pursue-improve-its-urban

    It does not pass judgement on the macro-economic effects of immigration (not my area of expertise/investigation) it just noted population growth is a source of increasing demand for space in cities -as would be increasing employment or increasing economic activity and incomes.

    Michael you or your readers may be interested in the article.
    https://www.interest.co.nz/opinion/93194/brendon-harre-sees-many-reforms-new-zealand-could-and-should-pursue-improve-its-urban

    I would be interested in comments here or on Interest.co.nz.

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    • Brendon

      Interesting article (and a series of interesting comments at interest.co.nz).

      I have mixed feelings, as you probably expect. I don’t really buy the chart on roading costs – the two high numbers (among projects actually built) are for tunnels that never needed to be tunnels. If govts choose the really expensive option – from memory a reader told me that using a tunnel doubled the cost of Waterview – it is really expensive. that said, the failure to designate future road corridors – given the mad commitment to rapid population increase – should be held against relevant central and local govt officeholders (I was going to use the word “leaders” but somehow it seemed inappropriate).

      I’m in favour of allowing neighbourhoods to make their own collective decisions on intensification or not, and would write existing provisions into LIMs, and then allow then to be negotiated out.

      I also agree that current policies/practices are disadvantaging most severely the poor and more marginal parts of our community (esp Maori and Pacific). Having said that, in my immigration story I suspect the drive to push up NZ’s (and Akld’s) population is doing even more harm – including to those marginal groups – than the crazy land use laws are. It was my point last week on Andrew Leigh’s speech: (relative) poverty rates in NZ and Aus are much the same, but as the income gap between NZ and Aus is now so large, the absolute state of our poor is (typically) worse than the absolute state of Aus’s poor.

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  6. Yes, agree with that literature, and the implications re housing. But that is a different issue than the one I’m dealing with here – about the relationship between the level of population and the level of income.

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  7. There are two sides to the ledger card

    Many years ago after a young life playing and excelling in weight-restricted rugby I discovered too late I would never be big enough for the top levels. So I turned to Soccer. Attended NZFA coaching courses. Coaching a young team of 12 year olds one of the mothers from the parent group told me her eldest son played rugby while her youngest played soccer. What she noticed was rugby focused on tackling the opponent and not the ball while soccer focused on the ball and not the opponent. After a Saturday of sport it took her eldest son from Sunday thru Wednesday to come down off an aggressive plateau and resume friendships with the rest of the family

    I mention that as a prelude to the re-engineering of society as it happens today in Auckland and how our history and culture is being changed. There are two sides to the ledger card. The debits and the credits. Most of the published economics papers deal with only one side of the ledger card. This article is entitled “white flight”. What it doesn’t say is the Auckland Super Rugby Team is mainly non-caucasian and at the bottom of the super-rugby league. Look carefully at the percentages
    http://www.nzherald.co.nz/sport/news/article.cfm?c_id=4&objectid=12029746

    Listen and read the Fry-Wilson preview and see where its going and what its arguing for – more immigration

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    • I don’t trust NZIER ever since
      http://www.stuff.co.nz/dominion-post/news/8025280/Optimal-size-for-New-Zealand-15-million

      Classic Spoonley – may need to press-gang migrants

      And although the Greens’ Graham notes that, as a temperate island, we may become very attractive to climate change refugees, Spoonley – who specialises in studying immigration – says overall, the competition for migrants will only increase.

      “One of the major strategies for nearly all OECD countries is going to have to be migration: you want to recruit skills, but it is also a form of population replacement,” he says, especially for countries like Australia, Japan and Italy, which have already dropped below the birth rate necessary to sustain their existing populations.

      And here’s the bad news: Spoonley says the two big talent pools in our region, India and China, will face the same challenges and want to keep more young people at home, forcing us to try new markets.

      That makes it even more vital we accommodate the population we have in the right way.

      “When we do surveys of immigrants and why they come to New Zealand, they all mention quality of lifestyle . . . so is growth going to compromise our major brand advantage?” he asks.

      The reason I don’t trust them is Julie Fry’s paper:

      2.3 Changing policy expectations
      While useful, models do not capture all the effects policymakers expect from immigration. When New Zealand moved to increase the numbers and skills of immigrants in the 1980s and 1990s, policymakers appear to have considered that these changes had the potential to have major beneficial impacts on the New Zealand economy, reinforcing the gains from the other liberalising and deregulating economic reforms undertaken during that period.

      At that time, it was considered that skills-focused inward migration could: improve growth by bringing in better quality human capital and addressing skills shortages; improve international connections and boost trade; help mitigate the effects of population ageing; and have beneficial effects on fiscal balance. As well as “replacing” departing New Zealanders and providing particular help with staffing public services (for example,
      medical professionals), it was believed that migration flows could be managed so as to avoid possible detrimental effects (such as congestion or poorer economic prospects) for existing New Zealanders.

      Since then, New Zealand has had substantial gross and net immigration, which has been relatively skill-focused by international standards. However, New Zealand’s economic performance has not been transformed. Growth in GDP per capita has been relatively lacklustre, with no progress in closing income gaps with the rest of the advanced world, and productivity performance has been poor. It may be that initial expectations about the potential positive net benefits of immigration were too high.

      Based on a large body of new research evidence and practical experience, the consensus among policymakers now is that other factors are more important for per capita growth nd productivity than migration and population growth. CGE modelling exercises for Australia and New Zealand have been influential in reshaping expectations.

      How can one researcher from NZIER overturn that in one paid for study while the media gave Julie Fry’s paper (14 economists contributed) zilch publicity?

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  8. New Zealand’s natural advantage, the basis of its prosperity, is that, with a resident population of four million, it feeds twenty million. There are a few examples of successful NZ goods or services outside of primary production beyond our local needs, but they are chicken feed.
    The problem with relying on population growth to power the economy is that it is an addiction – ever more growth until the fateful day when we become, like Egypt, a country unable to feed itself, and with inadequate exports to purchase food from abroad. [I am using food in the broader sense of all the necessities of life, including gas and building lumber].

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  9. To state the obvious

    1) Politicians love immigration as it generally helps keeps GDP positive

    2) When it comes to elections “its the economy stupid”, i.e. economic conditions have a strong influence on election outcomes

    3) Businesses love immigration because they get already skilled people without having to pay the training costs.

    4) Fat chance of the government legislating gdp per capita as the main KPI ahead of GDP or charging a market driven fee (highest bidder) for immigrants.

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  10. The other was thing, which Michael has pointed out in other posts, is that mass immigration and the impact it has on resource allocation, crowds out things that would potentially have a big impact on incomes.
    In a nutshell, investment is biased to housing (not just due to tax rules but because of the artificial price inflation and need for $$$ for new builds).
    At the same time we have companies developing new rocket launch, software, robotics, AI/AR/VR, agritech etc technologies. However these companies can’t find capital to scale here in NZ. Some Angel funding around early but no institutional VC market so they all have to head offshore. Rocketlab, great Kiwi company? Owned by offshore funds that will eventually recycle sale proceeds into other projects offshore. We may keep an operational crew here and Peter will always be a champion of NZ but sad that we keep missing our chance to own a piece of the next productivity stories.

    Liked by 1 person

  11. Academia’s Consilience Crisis
    http://quillette.com/2018/04/08/academias-consilience-crisis/
    Made me Google economics + consilience and I came up with this paper:

    The human system, driven largely by economic decisions, has profoundly affected
    planetary ecosystems as well as the energy supplies and natural resources essential to
    economic production. The challenge of sustainability is to understand and manage the complex
    interactions between human systems and the rest of nature. This conceptual article makes the
    case that meeting this challenge requires consilience between the natural sciences, social
    sciences and humanities, which is to say that their basic assumptions must be mutually
    reinforcing and consistent

    https://pdfs.semanticscholar.org/a532/2a6be7fe01cc143500f8974b5eb69fd3e68e.pdf

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