I’d like some clarifications on the following two statements from the CFAI curriculum. The text doesn’t provide any explanation or context. I’d like an intuitive explanation and also a quantitative explanation if possible, but it seems like the impact on the rate of change of per capita GDP is what is confusing me–it is a second order and I can’t wrap my head around it.
Note that although population growth may increase the growth rate of the overall economy, it has no impact on the rate of increase in per capita GDP.
In contrast to population, an increase in the participation rate may raise the growth of per capita GDP.
So, GDP per capital is GDP of country, adjusted by inflation over the total population.
Perfect example I can think of is Canada. Canada rapidly increased its population through its open -door immigration so the absolute number of GDP looks to have increased over time. However, if you compare that to the pace of population growth, GDP per capital is actually in a declining trend. So that’s what it means that population growth increases the overall economy, but if population grows faster than GDP, it doesn’t actually increase GDP per capita. In fact, it can be going down. A great analogy I can think of is you are not increasing the total size of the pie, but rather slicing the pies thinner.
Especially on the long-term basis, increase in labour participation rate positively affects the growth of GDP per capita. Simply put, the more people in a country are willing to participate in employment would positively support GDP with an equal or lesser increase in population. Empirical study here.