Sunday, 2 June 2013


    ‘Malthus defended his theory of population partly by logic, partly by fact, but not rigorously by either’.

      Malthus theory of population was described in six editions of his “An Essay on the Principle of Population” which was published from 1798 to 1826. His theory was based on two assumptions. The first assumption was that food is necessary for the existence of man. And the second assumption was that “the passion between the sexes is necessary and will remain nearly in its present state.”  By his second statement Malthus meant that birth rates are fixed and therefore there is a constant growth in population. He also stated that these two “postulates” are laws which are fixed meaning that there is nothing which can change the power of the earth to produce subsistence and the power of population increase. From these two statements he concluded that population grows geometrically but food supply only increases arithmetically. Hence, there will be a point in the future when population exceeds food supply. To calculate this point only starting figures of food and population are needed. Following his argument it can be calculated that population of England doubles every 51 years, for example. His conclusions can also be represented on diagrams.

This diagram shows the geometric growth of population and the arithmetic growth of food. It also shows the point at which population exceeds food supply, according to Malthus.

 

 

This diagram shows the decrease in the amount of food per person according to the Malthus theory of population.

 Another conclusion which Malthus drawn from his two postulates was that when the supply of food exceeds population(which will eventually happen) the “ checks on population” set up and population gradually decreases when those checks take place. These checks, he claimed, were vise and misery. Hence, if his conclusions were right then there is always a threat of vise and misery as population will always grow at a faster rate than food. This was his theory of population described in his first book, however, in his second book he introduced some alterations in response to the critics of his theory. He introduced a principle of moral restraint which meant that another check on population can be a decision of a part of population to deliberately reduce birth rates. He also stated that population increases only when the means of subsistence increase. Hence, the population is limited by the means of subsistence. Overall, to make it more clear I would say that Malthus theory of population can be shortly described as follows: the facts that population grows geometrically and the means of subsistence grow arithmetically imply that at some point population will exceed the food supply and at this point checks on population such as vise, misery and moral restraint will set up and population will decrease to a natural level, thus this circle will happen again.

      However, it can be argued that his theory was lacking logic in some parts and evidence in other parts. Firstly, it can be said that his first book contradicts with the second book. This is because in the first book he states that “the passion between the sexes” is a fixed law and it “ will remain constant at its present state”. However, in his second edition he introduced a check called “ moral restraint” which means the “ passion between the sexes” cannot be constant as the moral restraint implies a deliberate reduce in the birth rates. Another argument that put Malthus theory under threat is the lack of logical reasoning from stating his two postulates to the conclusion that hence the population will grow at a geometrical rate, if unchecked and the means of subsistence will grow at an arithmetical rate. Therefore, if his logic is not proved in that sense, all of his conclusions cannot be drawn and firmly confirmed. Moreover, Malthus did not consider any factors that can influence the production of the means of subsistence. For example, he stated that food will grow arithmetically and this growth will be constant, ignoring the facts of the increase in productivity of land, the production of food and the technological developments. There is a clear evidence of these developments in the history. For example, one of the recent developments in the food production is GMO products which is projected to have a positive impact on the growth in food production. Malthus clearly missed technological development out.

         Another fact that can undermine Malthus theory of population is the reliance of his data on population growth and the absence of any data on the food production growth. Firstly, his data on population cannot be very reliable because he used very small time scales and the validity of censuses is questionable. For example, Malthus used a fourteen years period to calculate that the ratio of births to deaths is 1 to 63 in Russian. Clearly, this period could have had special features which might explain the growth of population. Malthus also used the data on population in specific countries, he did not use the worldwide population data. This means that, for example,  the population in some of the other countries has actually decreased. Therefore, the data could have actually being distorted. Besides, Malthus was mostly blamed for the absence of any data on the growth of food production. For example, John Weyland(The Principle of Population and Production, 1816) said that although Malthus cannot be blamed for the absence of the data on food production growth as there was not any data available at that time but Malthus should have considered the agrarian revolution which, for example, kept England almost as a self-supplying nation.

         Besides all the critics of Malthusian population model it still has some logic and at least some evidence to back it up. Hence, this model can provide with some notions among economists of the past. However, this model is useless in predicting the future economic events. This is because of the validity of the data Malthus collected, the absence of the data on food production, self-contradictions but most importantly he ignored the fact of technological developments and the possible change in the pattern of population growth(in his first essay).

This is important because the growth of technology has a significant impact on the growth of both food production and population change. For example, a hundred years ago the use of green houses, soul energy, computerized watering of plant processes or technologically advanced lines of food productions were hardly imaginable. Therefore, Malthusian theory of population cannot be used in its present form.

          To sum up, the claim the Malthusian theory of population is defended partly by logic, partly by fact but not rigorously by either is justified. This is because although there is some logic as the fact that if the growth of population is constantly higher that the growth of the means of subsistence there will be a point when there might be checks such as vise and misery, however it is was not a logical conclusion that the growth of population will constantly exceed the growth of food production. Moreover, although he collected some evidence it cannot back up his theory as it might not be reliable and most importantly his data was not dynamic.

                                                  References.

  • Malthus, An Essay On The Principle Of Population (1798 1st edition) with A Summary View (1830), and Introduction by Professor Antony Flew. Penguin Classics.
  • Malthus, An Essay On The Principle Of Population (1798 1st edition, plus excerpts 1803 2nd edition), Introduction by Philip Appleman, and assorted commentary on Malthus edited by Appleman. Norton Critical Editions. William Peterson, Malthus, Founder of Modern Demography (1979, 1999).
  • William Godwin, Enquiry Concerning Political Justice (1793)
  • Malthus, A Summary View of the Principle of Population(1830)
  • W. Hazlitt, A Reply to the Essay on Population by the Rev. T. R. Malthus, (1807)
  • John Weyland, The Principle of Population and Production, 1816.

 

Trade Creation vs Trade Diversion


The benefits and costs of increased trade integration between countries depends on the relative importance of trade creation versus  trade diversion.

 

The concept of whether economic integration between countries reduces wealth was established by Jacob Viner in 1950. His argument was that to measure whether an increase in economic integration is beneficial for a country we have to find out whether the gains from domestic production replaced by cheaper imports from a member nation( Trade creation) are higher than losses of expensive imports from member nations replacing cheap imports from non-members(Trade diversion) or not.
        To explain the effects of integration between countries the diagram can be used. Assuming that D
uk and Suk  are the demand and supply of good X in the UK.Sw is the world supply of good X. Therefore the UK puts a tariff and imports X0-X1 and the government is getting a revenue of GCTR. When the UK joins the EU it removes a tariff from EU imports and it stops importing from non-EU countries as the price in the EU is lower than the world price with the UK tariff. Therefore, as a result of joining the EU the price of X in the UK falls from P0 to P1. The volume of imports increases tp X2-X3. It implies that UK consumers are getting good X for a lower price which is beneficial for them and hence they are gaining an increase in consumers surplus( a+b+c+d). This is partly a result of a redistribution from UK producers( a) as they cannot charge P0 anymore and government(c ) as it is not gaining any revenue and partly because of the trade creation ( b+d). Area “e” is also a loss of government revenue but it is not redistributed and hence this is a deadweight loss called trade diversion. Overall the net welfare loss from integration is (b+d)-e. Therefore, it can be argued that the benefits and costs of trade integration between countries depend on the relative significance of trade creation and trade diversion.





 


 

The size of the net effect of trade integration between countries depends on the initial tariff on imports from the rest of the world and the difference in the cost of production between non-members and members of Free Trade Area( FTA). If the initial tariff on imports is relatively high ( as shown on the diagram below) then the effects of trade creation will be more significant. This is because consumers will gain more surplus as a result of trade creation( a+b+c+d). Moreover, if the difference in the cost of production between the members of FTA and the rest of the world is not significant(as shown on the diagram SEU - SW ) negative effects of trade diversion would be decreased to a minimum.



 

 

The net effects of Trade creation and Trade diversion always exist when there is an integration between countries  and need to be taken into account when analyzing economic implications of integration. To make it more clear I would take an example of the USA, Mexico and Canada forming NAFTA(1994). There is a clear evidence that after formation of NAFTA the trade between three countries has increased. For example, US exports to Mexico have increased from 8.9%(1993) to 11.6%(1998), exports to Canada have also increased by 1.2 % at the same period. US import from Mexico have increased by more than 4% from 1993 to 1998.

 

Table l. NAFTA TRADING PATTERNS

 

a. UNITED STATES TRADE

 

U.S. Exports

(billions of U.S. dollars and percent)

 

Year      Total Exports         Exports to Mexico     Percent        Exports to Canada       Percent

 

1980               220.8                        15.1                      6.9                       35.4                     16.0

1985               213.1                        13.6                      6.4                       47.3                     22.2

1990               393.1                        28.4                      7.2                       83.0                     21.1

1991               421.8                        33.3                      7.9                       85.1                     20.2

1992               447.3                        40.6                      9.1                       90.2                     20.2

1993               465.4                        41.6                      8.9                      100.2                    21.5

1994              512.4                        50.8                       9.9                      114.3                    22.3
1995              583.5                        46.3                       7.9                      126.0                    21.6

1996               622.9                        56.8                       9.1                      132.6                    21.3

1997               687.6                        71.4                      10.4                     150.1                    21.8

1998               680.0                        79.0                       11.6                     154.2                    22.7

 

U.S. Imports

(billions of U.S. dollars and percent)

 

Year      Total Imports      Imports from Mexico      Percent      Imports from Canada       Percent

 

1980               257.0                       12.8                        5.0                       42.0                        16.3

1985               361.6                       19.4                        5.4                       69.4                        19.2

1990               517.0                        30.8                       6.0                       93.8                        18.1

1991               509.3                        31.9                       6.3                       93.7                        18.4

1992               552.6                        35.9                       6.5                      101.3                       18.3

1993               600.0                        40.7                       6.8                      113.6                       18.9

1994               689.3                        50.4                       7.3                      132.0                       19.1

1995               771.0                        62.8                       8.1                      148.3                       19.2

1996               817.8                        74.1                       9.1                      159.7                       19.5

1997               898.7                        87.2                       9.7                      171.4                       19.1

1998               944.6                        96.1                      10.2                     178.0                       18.8

 

b. CANADIAN TRADE

 

Canadian Exports

(billions of U.S. dollars and percent)

 

Year       Total Exports       Exports to Mexico      Percent       Exports to U.S.      Percent

 

1980                 67.7                        0.4                       0.6                   41.1                 60.6

1985                 90.8                        0.3                       0.3                   68.3                 75.2

1990                126.4                       0.5                       0.4                   95.4                 75.4

1991                126.2                       0.4                       0.3                   95.6                 75.8

1992                133.4                       0.6                       0.5                  103.9                77.8

1993                140.7                       0.6                       0.4                  114.4                81.3

1994                161.3                       0.7                       0.4                  133.1                82.5

1995                190.2                       0.8                       0.4                  152.9                80.4

1996                200.1                       0.9                       0.4                  164.8                82.3

1997                213.0                       0.9                       0.4                  177.3                83.2

1998                211.4                       0.9                       0.4                  182.8                86.5

 

Canadian Imports

(billions of U.S. dollars and percent)

 

Year       Total Imports    Imports from Mexico       Percent    Imports from U.S.       Percent

 

1980                 61.0                        0.3                          0.5                   41.2                   67.5

1985                 78.7                        1.0                          1.2                   54.1                   68.7

1990                119.7                       1.5                          1.2                   75.3                   62.9

1991                120.5                       2.1                          1.8                   75.0                   62.3

1992                124.8                       2.2                          1.8                   79.3                   63.5

1993                134.9                       2.7                           2.0                   87.8                 65.0

1994                151.5                       3.1                           2.1                   99.6                 65.8

1995                163.3                       3.8                           2.3                  109.0                66.7

1996                170.0                       4.3                           2.5                  114.6                67.4

1997                195.5                       5.0                           2.5                  131.9                67.5

1998                200.3                       5.1                           2.5                  136.8                68.3

 

c. MEXICAN TRADE

(billions of U.S. dollars and percent)

 

Mexican Exports

 

Year    Total Exports       Exports to U.S.     Percent          Exports to Canada      Percent

 

1980               18.0                 12.5                   69.4                          0.1                     0.8

1985               26.8                 19.0                   70.8                          0.4                     1.8

1990               40.7                 32.3                   79.43                        0.2                     0.8

1991               42.7                 34.0                   79.5                          1.1                     2.7

1992               46.2                 37.5                    81.1                         1.0                     2.2

1993               51.8                 43.1                    83.3                         1.5                     3.0

1994               60.9                 51.9                    85.3                         1.5                     2.4

1995               79.5                 66.5                    83.6                         2.0                     2.5

1996               96.0                 80.7                    84.0                         2.2                     2.3

1997              110.4                 94.5                   85.6                         2.2                     2.0

1998              106.8                 87.3                   81.8                         4.9                     4.5

 

Mexican Imports

 

Year    Total Imports    Imports from U.S.      Percent       Imports from Canada       Percent

 

1980               17.7                 10.9                       61.6                         0.3                     1.8

1985               13.4                  9.0                        66.6                         0.2                     1.8

1990               30.0                 19.8                       66.1                         0.4                     1.3

1991               49.9                 36.9                       73.9                         0.7                     1.4

1992               62.1                 44.3                       71.3                         1.1                     1.7

1993               65.4                 46.6                       71.2                         1.2                     1.8

1994               79.3                 57.0                       71.8                         1.6                     2.0

1995               72.5                 54.0                       74.5                         1.4                     1.9

1996               89.5                 67.6                       75.6                         1.7                     1.9

1997              109.8                 82.2                      74.8                         2.0                     1.8

1998              106.9                 79.0                      73.9                         0.9                     0.8

 

Source:  International Monetary Fund, Direction of Trade Statistics, various issues.

 

This data clearly shows that the intra-NAFTA trade have increased as a result of a formation. However, to determine whether there is a positive or a negative net effect of NAFTA formation we can examine whether trade between the rest of the world and NAFTA countries have declined while intra union trade increased as we have already established. According to USITC Trade Data Wed there were very few trade categories in which the trade between NAFTA countries and the rest of the world declined. It cannot definitely be concluded whether this decline was as a result of trade diversion or some other factors but even if it was a trade diversion it was so insignificant that it cannot be taken into account. Hence, using this analysis it can be concluded that in the case of NAFTA trade creation has a higher impact than trade diversion on member countries. Moreover, other technical lines of analysis can be used to measure the impact of the formation of the union. For example, Anne O. Krueger comes to the same conclusion that “ the expansion of trade was trade creating, not diverting”.  This is very important conclusion because she was using different techniques such as gravity equations and shift and share analysis to estimate the effects of this trade integration.

To sum up,  it is clear that the economic effects of trade integration between countries depend on the relative importance of trade creation and trade diversion. Moreover, the differentials in cost of production between members of FTA and non-members alongside with the size of initial tariff determine the extent of the net impact of trade integration. The example of NAFTA shows a positive impact because trade creation exceeds trade diversion.

 

Reference.

 

Bhagwati,     Jagdish,   Pravin    Krishna,   and   Arvind    Panagariya,    editors.  l999.  Trading     Blocs. Alternative   Approaches   to   Analyzing   Preferential   Trade   Arrangements,   MIT   Press,   Cambridge, MA.

 

Bhagwati,     Jagdish,   and  Anne    O.  Krueger,    l995. The    Dangerous     Drift  to  Preferential  Trade Agreements, American Enterprise Institute Press, Washington D.C.

 

Frankel, Jeffrey A., 1997. Regional Trading Blocs in the World Economic System, Institute for

International Economics, Washington D.C.

 

Frankel,   Jeffrey   A.,   editor.   1998.  The   Regionalization   of   the   World   Economy,   University   of Chicago Press, Chicago.

 

Hufbauer,     Gary    C.,  and  Jeffrey   J.  Schott,  l992.  North    American     Free   Trade.   Issues  and Recommendations, Institute for International Economics, Washington D.C.

 

Hufbauer,     Gary    C.,  and   Jeffrey   J.  Schott,   l993. NAFTA,       An    Assessment ,    Institute   for International Economics, Washington D. C.

 

Krueger, Anne O., l997a. “Nominal Anchor Exchange Rate Policies as a Domestic Distortion,”

National Bureau of Economic Research Working Paper 5968, March.

 

Krueger,     Anne    O.,  l997b.   “Free   Trade    Agreements     versus   Customs     Unions,”   Journal     of Development Economics, Vol. 54, No. l, October. Pp. 169-187.

 

Krueger,   Anne   O.,   l999.   “Free   Trade   Agreements   as   Protectionist   Devices:   Rules   of   Origin,” Pp.91-102 in James C. Moore, Raymond Riezman and James R. Melvin, editors,  Trade, Theory and Econometrics, Essays in Honor of John S. Chipman, Routledge, London.

 

Kemp, Murray C., and Henry Wan, l976. “An Elementary Proposition Concerning the Formation

 

North    American     Free   Trade   Agreement     between    the  Government of  the  United   States   of  America, the Government of Canada and the Government of the United Mexican States,   1993.

Volumes l and 2. Government Printing Office, Washington D.C.

 

Viner, Jacob, l950. The Customs Union Issue, Carnegie Endowment for International Peace, New York.

 

World   Trade   Organization,   l995.  Regionalism   and   the   World   Trading   System,       World   Trade Organization, Geneva.

 

Yeats,    Alexander    J.,  l998.  “Does   Mercosur’s    Trade   Performance     Raise   Concerns    about  the Effects   of   Regional   Trading   Arrangements?,”  World   Bank   Economic   Review,   Vol.   12,   No.   l,

 

January. Pp. 1-28. of Customs Unions,” Journal of International Economics, Vol. 6, No. l, February. Pp. 95-97.

 

 

Anne O. Krueger ,“Trade creation and Trade diversion”,Working Paper 7429, Cambridge MA, 1999.