Population Density, Optimal Infrastructure and Economic Growth Centre for the Study of African Economics (CSAE) Conference 2013 (Oxford University) Population Density, Optimal Infrastructure and Economic Growth by Mr. Sumit DEOLE (Master Thesis Supervisor – Prof. Raouf Boucekkine) Aix-Marseille School of Economics

Main Aims A. Another effort to accommodate complementary role played by human capital and physical capital on economic growth of the country. B. To investigate the impact of infrastructure availability on the (I) fertility and (II) education decisions of the parents, and at macro level, on the economic growth of the country (exo. infra. costs) To study the infrastructure location policy of infrastructure providing authority (endo. infra. costs) Important role played by mobile population in the process of economic development 2

Outline Introduction Theoretical Exploration A) Exogenous Infrastructure Costs B) Endogenous Infrastructure Costs Empirical Evidence Conclusion

- Physical capital theory or Human capital theory? Introduction Economic Growth -  steady growth in the productive capacity of the economy (http://wordnetweb.princeton.edu) What explains it better? - Physical capital theory or Human capital theory?

The Indian Case:

Massive urbanization in developing countries  denser population  improved accessibility to public facilities Denser population brings in more infrastructures per worker in the region (Glover and Simon 1975 and Fujita, M. 2002) There is a positive impact of population density on technological progress (Galor and Weil 2000 and Becker, Glaeser, and Murphy 1999) But the above impact only shows up through an increase in the profitability of the infrastructure providing facilities (Boucekkine et al. 2007)

Micro-foundations of geographical interpretation of economic growth are very well explained in Boucekkine et al. (2007), but demography is exogenous Demography is exogenous in Croix-Doepke (2003) but introduction micro-foundations of geographical interpretation complicates the model Hence, are introduced in a simpler manner.

Theoretical Exploration

Model - A The model economy is populated with overlapping generations of people Two agents: Households and Firms Household Problem Modeling set-up: Individuals live for two periods: childhood and adulthood Adults make all the decisions There is an intra-family transmission of human capital

Case I: When parents decide to reside near workplace (parents pay transportation costs for their children to go to school But don’t pay any transportation cost for their own) Household Optimization Program: s.t.

Budget constraint of the parent where, - is the fraction of labor income paid for the usage of public facility - is the total payment for the usage (ex. bus ticket)

Firm Problem where, At = constant rate of technological progress Lt = efficiency units of labor employed The profit function of the firm is given by: At equilibrium, Important Assumption: The relative human capital of the parents is,

Results Parent’s decision I (number of children) Parent’s decision II (schooling time per child)

Balanced Growth Path: Where, - factor of output growth

B. Station Location Policy Station building cost α 1/(total population in the region) Optimal setting --> uniformly distributed stations The potential catchment area of the station located at 0 is given by

Global profits of the central authority are given by, Location policy depends on following factors:

Simpler Implications At , At , no station will be built.

Simplifying assumption: - homogeneity in level of human capital of the population. and substituting this back in to the formula for growth rate, gives us a constant growth rate of the economy.

Empirical Evidences

Granger’s Causality

Conclusion Endogenized demographics which were absent in Boucekkine et al. (2007) Introduced infrastructure costs as a decision variable for parents. Simpler geographical interpretations of economic growth Supported the positive impact of population density on the economic growth Population mobility plays important role in efficient allocation of labor resources and hence explains economic growth.

THANKING YOU…