The world's population was estimated to be around six billion people as the twenty-first century began. According to UN projections, the population will reach more than nine point two billion by 2050, with a maximum of eleven billion by 2200. Over 90% of that population will live in underdeveloped countries (Todaro and Smith, 2006).
According to Anulawathie Menike (2018), population growth and economic development in a country have a close and reciprocal link. In one sense, the population is a supply of labor that could be used to boost the country's output. It might also be viewed as a consumer group that consumes and depletes a significant portion of the country's resources. Certain economists from the past have noted that a country's population increase and quick growth is linked to its economy.
Gideon Thuku discussed the Malthusian hypothesis, which suggested that food problem is associated with a high population increase, i.e., malnutrition and hunger while Bloom and Freeman (1998) has a different view that food problem is more problem on poverty and inadequate income than high population growth. When people could buy then the food crisis can be overcome as prices give ample incentives to produce. In addition, to meet their rising demand for food, most developing economies would have to expand exports, seek foreign aid, or borrow from abroad. A high rate of population increase has an impact to render more intense on the constraints to the development of savings, foreign exchange, and human resources has an adverse impact on improvement in food supplies (Gideon T., 2013).
More than 75 million people are added to the world's population every year. Developing countries account for nearly all of this net population gain (97 percent). Although such large increases are unusual, the challenge of population expansion is more than just a matter of numbers. It's a question of human well-being and development. Rapid population expansion has the potential to have major ramifications for humanity's overall well-being. If development entails the improvement in people’s levels of living their incomes, health, education, and general wellbeing and if it encompasses their capabilities, self-esteem, respect, dignity, and freedom to choose (Todaro and Smith, 2012).
Ethiopia's population is growing at an incredible rate. Ethiopian populations were estimated to be 11.75 million in the early twentieth century, with a 0.2 percent annual growth rate, and expected to double in 346 years. Ethiopia's population, on the other hand, has more than doubled in the last 60 years. Between 1960 and 1990, Ethiopia's population doubled. According to population census data from 1984, 1994, and 2007, Ethiopia's population was 39.37 million, 55.18 million, and 80.67 million, respectively. As a result, it will only take 27 years to double the population growth from the 2007 census report.
Kassahun Alemu (2014); uses a time serious data on “the impacts of population growth on the Ethiopian performance from 1970/71 up to 20012/13”. From the general regression results, He was concluded that, “population issue was very controversial because it has negative impact in the short run, but the implication is positive in the long run”. This invites to investigate other variables like investment, age dependency ratio and labour force that affect economic growth if its correlation can be positive in the long term.
In Ethiopia, monetary policy is a tool used by the government or the Central Bank of Ethiopia to achieve a set of goals aimed at promoting economic growth and stability. The National Bank of Ethiopia's key responsibilities in Ethiopia include monetary policy management and financial sector stability (NBE). With changing economic dynamics within the country and increased empirical and theoretical understanding of monetary policy around the world, Ethiopian monetary policy and the process of formulating it has changed (NBE, 2009).
Population increase and per capita output growth do not appear to be independent, according to the literature. The nature of their interaction appears to be highly dependent on the conditions and population age structure in each country and region. Because of Japan's aging population, a smaller cohort of working-age individuals will be required to sustain increasing numbers of pensioners and slower economic development unless productivity and per-capita output increase significantly. In many African countries, a new form of dependency problem arises, where a small working-age population is required to support a huge number of children with significant educational and health demands. When these youngsters join the labor force in the future, economic growth should accelerate (E. Wesley F. Peterson, 2017).
The trends suggest that the interaction of population pressures and the economy is a very important issue and may have contributed to perpetuation of poverty trap in Ethiopia. Specifically, this study tries to know the effects of total population on economic growth analyze the short run and long run relationship of economic growth.
1.2. Statement of the Problem
Ethiopia's population is growing at an incredible rate. Around 20th century, the number of Ethiopian populace considered to be 11.75 million with 0.2 percent annual growth rate and it anticipated to be doubled in 346 years. Ethiopia's population, on the other hand, has more than doubled in the last 60 years. Between 1960 and 1990, Ethiopia's population doubled. According to population census data from 1984, 1994, and 2007, Ethiopia's population was 39.37 million, 55.18 million, and 80.67 million, respectively. Therefore, in order to double the population growth from 2007 census report it just requires 27 years.
Kassahun Alemu analyzes "the impacts of population expansion on Ethiopian performance from 1970/71 to 20012/13" using time-series data. He concluded from the overall regression results that the population issue was very contentious because it has a negative influence in the near run but has a beneficial long-term implication. This opens the door to looking at other factors that affect economic growth, such as investment, the age dependency ratio, and the labor force, to see if the correlation can be favorable in the long run.
Gideon Thuku (2013) used data from 1963 to 2009 in his study. He used a VAR model in which he included explanatory variables such as real GDP growth, total population, population density, and urban population growth. The estimated Augmented Dickey Fuller test statistic value is bigger than the critical value at 95 percent confidence level, implying that both economic and population growth rates are stationary at levels, according to the study's empirical findings. He also omitted variables such as personal remittances and the rate of inflation, both of which are important in the analysis of population and economic growth. There is still a lot of disagreement about the effects of population growth on economic growth. As a result, the argument over the beneficial and negative effects of population expansion on the economy continues. On the plus side, economists argue that increased population leads to technological advancements and innovations. This is because population expansion fosters business competitiveness, and as a country's population grows, so does the size of its potential market (Gideon Thuku, 2013).
There appears to be considerable agreement in the literature that population increase and per capita production growths are not mutually exclusive. The nature of the interaction between them seems to be that it varies very much on the conditions and the age structure of the population in the various countries and areas. Because of the aging population in countries like Japan, a smaller cohort of working-age people will be required to support growing numbers of retirees and slowing economic growth unless productivity and per capita output rise significantly. In many African countries, a new form of dependency problem arises, where a small working-age population is required to support a huge number of children with significant educational and health demands. When these youngsters join the labor force in the future, economic growth should accelerate.
This rapid population growth may pose a threat unless the country's economic performance compensates. Econometric research has indicated that, this population growth has had a major negative impact in the short run but a favorable impact in the long run on the economic performance of the country (Kasahun Alemu, 2005).
According to the trends, the combination between population pressures and the economy is a major issue that may have led to Ethiopia's poverty trap perpetuation. As a result, the purpose of this article is to investigate the relationship between population growth and economic growth. If the population continues to increase at a rapid rate, so will economic growth.
1.3. Objective of the Study
1.3.1. General objective
This study looked into the "Effects of Population Growth on Economic Growth in Ethiopia Using the ARDL Model," with a focus on total population, real GDP, personal remittance, population growth rate, net inflow of foreign direct investment, inflation rate, and gross capital formation.
1.3.2. Specific objectives
To understand the effects of total population on economic growth.
To analyze the short run and long run relationship of economic growth with respect to population growth.
To identify the causal relationship between population growth and economic growth.