UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS DEMOGRAPHIC FACTORS AND ECONOMIC GROWTH: THE BI-DIRECTIONAL CAUSALITY IN SOUTH EAST ASIA BY VO TAN THANH DIEP MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, November 2015 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS DEMOGRAPHIC FACTORS AND ECONOMIC GROWTH: THE BI-DIRECTIONAL CAUSALITY IN SOUTH EAST ASIA A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By VO TAN THANH DIEP Academic Supervisor: PROFESSOR NGUYEN TRONG HOAI HO CHI MINH CITY, December 2015 i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com DECLARATION “I certify the content of this dissertation has not already been submitted for any degree and is not being currently submitted for any other degrees. I certify that, to the best of my knowledge, any help received in preparing this dissertation and all source used, have been acknowledged in this dissertation.” Signature Vo Tan Thanh Diep Date: ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT Foremost, I would like to express my sincere gratitude to my supervisor, Professor Nguyen Trong Hoai for his professional knowledge, perceptive guidance and for giving me valuable opportunities. His guidance really helped me for the direction of the research and writing of this thesis. In addition my advisor, I would like acknowledge the love from my family to me over the last 24 years.
A special thank is to my parents for their support throughout my life, to my sister and my relation in Ho Chi Minh City for valuable support during my studies. Furthermore, I would also like to thank all lecturers and staff at the Vietnam Netherlands Program and my VNP 20 classmates. Most of all, a special thanks go to my better haft – Nguyen Son Kien - for the motivation, encouragement and affectionate care that he bring to my life. iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT This study has demonstrated new evidence sustaining the idea that variation in demographic factors is an important determinant of growth in per capita income.
Using an annual panel dataset from 1990 to 2013 at the country-level in the Southeast Asia, this study is conducted to analyze the following key areas in comparing with current literature. First, the determination of the impact of a number of the demographic factors on the economic growth by using a various aspect of demographic factors, including: population growth, life expectancy, and age structure. Second, the interpretation of the bi-directional causality among: (i) the population growth and the economic growth; and (ii) the life expectancy and the economic growth. Furthermore, the two new econometric techniques, Driscoll and Kraay estimation, and structural equation model, in parallel with the panel regression technique are applied.
It is noticeable about the following key contribution, including: (i) the specification of the various aspects of demographic factors on the economic growth is analyzed in the new context (Southeast Asia) where most countries have experienced the demographic transition, and have received the demographic dividend; and (ii) the worth analysis of the bi-directional causality has been recognized since it is one of the first in its line of current literature that confirms the inverse effect of the economic growth on population growth, and life expectancy simultaneously. Key words: Demographic transition, economic growth, population growth, life expectancy, age structure, Southeast Asia, Panel data, SEM. iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENT Declaration. iv Table of content.
v List of tables. viii List of figures. ix Chapter 1 Introduction. 3 Chapter 2 Literature review.
Demographic factors and economic growth. The perspective of Malthusian Regime. The perspective of Post-Malthusian. The perspective of Modern Growth Regime.
Demographic transition and economic growth. The labor supply mechanism. The savings mechanism. The Human capital mechanism.
Population growth and age structure. Bi-directional causality. Determinants of economic growth, population growth, and life expectancy. 21 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
Hypothesis construction and conceptual framework. Demographic factors and economic growth. Two-way relationship. 25 Chapter 3 Research methodology.
Model specification for one way effects. Model specification for the bi-directional causality. Models of panel data regression. The model of Pooled regression.
The model of fixed effects estimation. The model of random effects estimation. Driscoll and Kraay standard errors and panel models. The structural equation model (SEM).
The causal effect and mediate mechanism. The simultaneous (non-recursive) structural equation model. The logic of SEM. 39 Chapter 4: Empirical results.
Overviews of demographic transition in Southeast Asian. The possible relationship by scatter. Demographic factors by deciles. Panel data regression.
One-way direction - Driscoll and Kraay estimation. The bi-directional causality estimation. 52 Chapter 5 Conclusions and policy implication. 58 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
The limitation and directions for further research. 62 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 3.3: Demographic variables by GDP per capita deciles .4: Variance inflation factor (VIF) .54 viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2.1: Life Cycle Income and Consumption .2: The process of demographic transition and population growth .3: Population growth and food supply.4: Population growth and economic growth, in period of 1300-2000.5: The exogenous growth model .6: The endogenous growth model .1: The causal effect and mediate mechanism.2: The non-recursive mechanism.3: The logic of SEM .1: Demographic factors during the period of 1960-2013 .2: The orientation of age structure in Southeast Asian countries .3: The population pyramids in Southeast Asia .4: Relationship between economic growth and demographic factors .44 ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1 INTRODUCTION 1. Problem statement According to United Nations (2015) the world’s population has nearly doubled over the span of the last thirty years and will boom to over 10 billion by 2050 if the fertility is constant. As a result of the linkage between population and both the supply and demand of economic production (Crenshaw et al., 1997), understanding the variation in the factors of population seems to be a necessity for the process of economic development.
In addition, from the best-known Malthusian theory (Malthus, 1798) to the unified growth theory (Galor, 2011), how the factors of demography affect economic performance has remained as a controversial issue that is of the growing interest for economists and policymakers. From the first demographic transition in history was marked by the declining mortality in Europe around 1800 (Lee, 2003), most of countries in the world has experienced demographic transition in different period during the past two centuries. Along with that, there was a huge number of studies, focusing on the influence of demographic change on economic growth. In recent decades, Asia, and especially East Asia, were the interesting entities for the investigation of the linkage between demographic factors and economic growth.
This has portrayed the economic leap forward, which elevated the position of some Asian countries in the world, was contributed by the enormous alteration in demography. Proving that, Boom and Williamson (1998) demonstrated a significant improvement in growth due to impact of demographic change in Asia during the period of 1965 to 1990. However, the situation has changed since the world was diversified into two different demographic regimes: some countries has been taking advantage of demographic dividend, while the others has been facing the aging population (Sanderson et al. In fact, Asia was not included in the exception, some countries has been receiving demographic bonus such as China, India.
On the other hand, some developed countries, like Japan, Korea, Hong Kong, have been facing the phenomenon of population aging since fertility reduced considerably and life expectancy rose steadily (Bloom et al. Page |1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Moreover, the story has been more complex after the Asian crisis in 1997 and financial crisis in 2007 which make the economic growth process more stalled (Bloom and Finlay, 2009). Accordingly, the analysis based on different time periods and regions in Asia may provide the distinct results of the impact of demography on process of economic growth. There are several reasons why the Southeast Asia seemed to be an interesting sample to investigate the relationship between demographic factors and economic growth in this study.
First, as reported of United Nations (2015), if considering Southeast Asia as a single country, its labor force is in the third place of the world in size, just behind China and India. Second, at the crossroads of the aging population in East Asian and the baby boom generation in South Asian, most of the countries in South East have just experienced the demographic transition in the last two decade and have been receiving demographic bonus (Bloom and Finlay, 2009). Third, according to the classification of World Bank, the Southeast Asian countries is relatively diversified from high-income countries, middle- income countries to low-income countries. Consequently, the sample from Southeast Asia could show a large variation in data across countries, but the homogenous group of countries with many similar characteristic like climate, culture, history may be observed.
Furthermore, this study also concerns the bi-directional causality between demographic factors (proxied by the population growth and the life expectancy) and economic growth that has not been clarified in most previous researches (Bloom et al., 2010; Cervellati and Sunde, 2011). Particularly, these papers has just dealt with this simultaneous problem to confirm the effect of demography on growth based on the estimation instrumental variables, yet ignored the possible impact of economic growth on demographic factor. Therefore, this study will not only focus on the link between economic growth in Southeast Asia and the demography of this area, but also shed light on the influence from the two factors to each other. In conclusion, although a number for publications have been found in the public domain, this study is different with the conducted researches in the past in the four fundamental areas.
First, the influence of demographic factor on economic growth has been clarified in the new context (Southeast Asia) where the phenomenon of demographic Page |2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com transition and demographic bonus is coming out (in the period of 1990-2013). Second, a various aspects of demographic factors are utilized simultaneously, including: population growth, life expectancy, and age structure. Third, the bi-directional causality is interpreted among: (i) the population growth and the economic growth; and (ii) the life expectancy and the economic growth. Fourth, the two new econometric techniques, Driscoll and Kraay estimation, and structural equation model, in parallel with the panel regression technique are applied.
Research objective This study aims to analyze the influence of a number of the demographic factors on the economic growth. Accordingly, there are two main objectives have been analyzed as following: (i) Determining the possible effects of a number of the demographic factors on the economic growth. (ii) Interpreting the bi-directional causality among: (i) the population growth and the economic growth; and (ii) the life expectancy and the economic growth. Research questions On the view of the main objectives, the three of research questions has been concerned: (i) Do demographic factors have significant influence on the economic development? (ii) Is there simultaneous nexus between the population growth and economic growth? (iii) Is there simultaneous nexus between the life expectancy and economic growth? 1.
Research scope This thesis has evaluated the relationship between demographic factor and economic growth by using the panel data in the period of 1990 - 2013.