Demographic economics or population economics is the application of economics to the demography, the study of human populations, including size, growth, density, distribution, and vital statistics. (Kelley & Schmidt, 2008)
The concept about population growth and its effect on economy are very old. Classical economists including Malthus raised their concerns that the rising population is the principal cause of skyrocketing demand and prices that ultimately act as a barrier against the economic growth (Lee, 2008).
It is obvious that that large families and quickly growing population impact adversely on Economic development. The rapid population growth has multidimensional effects on such economies where the ratio of economic growth is relatively lower than the population growth. The three main difficulties that have to be faced by such economy(s) are higher inflation rate, lower savings and disequilibrium in supply and demand. Here, disequilibrium means that increasing demand for limited resources with short supply.
The large population requires more resources to satisfy and fulfill their needs but the resources that are required have a cost. A big chunk of population strives to have that limited and scarce resources like food, clothing, health and education that misbalance the supply and demand equilibrium. This misbalance raises the demand that further pushes the prices that cause to inflation. It should be remembered, this discussion is about such economy where the population growth ratio is higher than the economic growth.
“In rural societies where farmland is fixed resource. Dividing it too often impoverishes successive generations. Without resources for development, supplies of fuel or water must also be shared among growing numbers. In urban communities, those without some education can find only low-level, ill-paid work, if they can find work at all.” (Unfpa, 2002)
Because of growing population, at the national level quickly growing numbers of relatively unskilled workers decrease the wage rates and savings both, because of the surplus in available worker against the labor/worker demand. On the other hand, this growing population (notice: worker is the part of the population) require more money/spending on health care, education and other services to satisfy their needs that further reduce savings and investment both. (Simon, 1981)
Here it should be remembered that, the investment is the catalyst for economic growth while the saving is the catalyst for investment. Therefore, if population is increased rapidly than to economic growth (as most of the development countries are facing this situation), this population growth adversely affects the savings because of the increasing demand of foods and other services by the population that requires more spending.
This decreasing trend in savings and increasing tendency in demands stimulate the inflation that cause to decrease in investment activities, the overall result will be the slow or negative economic growth. This negative situation could be countered, if particular economy successfully attracts the external resources to invest in different sectors like education and development etc and able to explore new dimension of savings.