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Socio-Economic Influences of Population Density∗

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Socio-Economic Influences of Population Density∗ Jul. 2009, Volume 8, No.7 (Serial No.73) Chinese Business Review, ISSN 1537-1506, USA Socio-economic influences of population density∗ Yuri A. Yegorov (Department of Industry, Energy and Environment, University of Vienna, Vienna A-1210, Austria) Abstract: While population density represents an important socio-economic parameter, its role is rarely studied in the economic literature (contrary to natural sciences). Population density plays an important role in harvesting societies, i.e. those that depend on agriculture and natural resources. With the development of industry and services and emergence of urban areas, population density becomes less economically important unless we consider aspects related to pollution. There exists a phase transition between rural and urban area which makes population density less important in urban area contrary to rural. However, the economic influence of population density in harvesting societies is also not straight forward. Too high population density decreases the natural endowment per capita, but eases the development of infrastructure, leading to existence of an optimal population density for economic growth. It also influences the demand for a monopolistic product, where too little density can lead to non-survival of a monopoly. Emergence of ethnic communities is based on more cooperative behavior in the case of low cultural and physical distances. At the same time, higher probability of large projects (like infrastructure) leads to development of cooperative behavior in the society. Elaboration along these lines leads to the conclusion that population density positively correlates with individualistic (non-cooperative, non-altruistic) behavior, through less time spent in cooperative infrastructure projects and higher frequency of meetings between individuals that with some probability lead to non-cooperative games. Key words: population density; economic development; optimization; cooperation 1. Introduction Countries differ not only in purely economic parameters (like GDP per capita, capital investment, etc.) but also in geographical characteristics that also influence economics. The development of GIS in recent years allows for measurement of not only aggregate macroeconomic characteristics of a country, but also of spatially distributed parameters. Population density and its spatial pattern is one of such characteristics. It plays an important role not only on economic but also on social aspects of life. First, potential influences of population density and associated heterogeneity will be outlined. Then, the corresponding economic models will be presented. Finally, the economic consequences will be analyzed and some country examples will be provided. 1.1 Discussions in literature Despite the fact that continuous spatial structures (and only such models can deal with population density) do not play major role in contemporary economic studies, such models were important in 1930-ies, starting from spatial oligopoly by Hotelling (1929) and models of monopolistic competition in space by Chamberlin (1933). A ∗ The work of Yuri A. Yegorov on this paper was partly financed by Austrian National Bank through the Jubiläumfonds project (No. 12826). Yuri A. Yegorov, Ph.D., Department of Industry, Energy and Environment, University of Vienna; research fields: economics and business. 1 Socio-economic influences of population density good survey of such models was done by Beckmann and Thisse (1986). Although new economic geography (see works of Krugman) claims to describe spatial economies, in most of its models it reduces geographical space to only two points, making it impossible to discuss the role of population density. Even telecom coverage (and thus efficiency) depends on distribution of population in space. Covering metropolitan areas is low per capita investment, and average density of population plays here less important role than urban-rural split. Here Krugman may be right that population density is not so crucial, but there are many other socio-economic activities where the situation is opposite. This article will focus on them. Population density is important not only for production activities, but also for social behavior. Wirth (1938) suggests that an increase in population density puts stress on humans, causing increased levels of social disorder, like crimes. Ladd (1992) studies the effects of population density on local public spending. While most planners argue that population density is good due to economies of density in the production of certain services, she had found empirically J-shaped curve of public spending per capita. It is clear why at low population densities costs per capita are high and why they decline as population density grows. However, after reaching some threshold density (she found it to be 250 people per square mile) per capita costs of public safety start to grow again. Westlund (1999) studies the factors that influence interregional cooperation. While natural factors (geographical, physical) have slow influence on change, cost and technical-logistical factors can generate rapid change in inter-regional interactions. Monnesland and Westlund (1999) evaluate Interreg programs between Sweden and Norway. They focus on population density and distance as factors influencing potential for interaction between regions in space. The factor of population density plays a crucial role in the mechanism of urban-rural split. As it was shown in the paper (Yegorov, 2005a), farming activity is possible in homogeneous space. When industrial technology emerges, it requires some minimum number of workers to cover at least fixed costs, and thus it starts first in one location. When the location of a city is chosen, it will create such rental price of land in space that new agricultural location rent will emerge. Land will be more expensive closer to the city, and thus land lots will be of less size there. Why the markets will be located in cities? Because they represent points with maximal concentration of population, and total transport cost that society pays will be minimal if they are located there. Finally equilibrium will emerge, where net income per farmer is exactly equal to net income per worker, and everybody consumes equal proportion of agricultural and industrial good. Population density can also influence the optimal country size. In the paper (Yegorov, 2005b), country is modelled as uniformly populated square with side a, and population density ρ. The revenue is assumed to be proportional to the territory: TR=αa². The total cost of running a country has several components: communication costs-the number of citizens multiplied to the average distance to the centre and unit transport cost; costs of protecting borders, which is proportional to the length of borderline, and cost of having government. The country’s objective depends on political regime. In the case of democracy the surplus per capita is maximized, while in the case of dictatorship—overall surplus. In both cases population density influences an optimal spatial size of a country. 1.2 Paper structure This is a theoretical paper using some abstract set up that can have some difference with reality. For example, there are no countries with uniform spread of population over space, but such an abstraction may be better than spaceless model. Moreover, it does not use any fixed spatial grid (typical for all CGE models) but compare structures that can exist on different grids if we deform the space. Thus, we can compare countries that are 2 Socio-economic influences of population density identical in all other economic parameters except for population density. Here are several fields where the role of population density seems to play an important role. 1.2.1 Low versus high population density Suppose that population density is uniform. We know that this is never the case (it is enough to contrast urban and rural areas), but it is convenient to start comparison from simple cases. If natural resources are spread evenly over space, then lower population density implies higher per capita endowment in natural resources. But to do harvesting, it is important to build network of infrastructure (to bring them to production centre, or to export). Typically transport cost per unit of resources to reach world market or a plant using them as input is higher when population density is lower. What factor would prevail? The paper shows that there exists some optimal population density, when production per capita is maximized and economic growth can be the highest (Yegorov, 2005a). 1.2.2 Spatial heterogeneity I: Rural-urban split Every spatial structure has some natural resources on it and also some centres (cities, industrial complexes), where some concentration takes place due to some scale economies. In this environment we have few more parameters: (a) average city size, (b) average distance between cities, (c) share of rural population (implying rural population density; relevant for agriculture). Rural-urban split has been considered in Yegorov (2005a). A line-land was considered there: equidistant cities on a line with heterogeneous population density between cities. There was a balance between production of industrial and agricultural good, and farmers in different locations were indifferent to reach the markets located in the closest city (like in von Thünen model). 1.2.3 Spatial heterogeneity II: Developed versus undeveloped land Here we focus on countries with large size having a fraction that is little developed.
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