Some business lobby groups are apparently opposed to Julia Gillard’s plan to reduce immigation rates, and hence population growth. It is argued that reducing population growth rates would reduce economic growth. Unfortunately this is far from clear cut. The workhorse model of economic growth, the neoclassical growth model, suggests that rising population growth reduces steady state living standards, and has no effect on per-capita economic growth. The simple and intuitive reason for this is that higher population growth increases investment required to keep the capital stock growing, which becomes more difficult the faster is population growth. If Tony Abbott cuts infrastructure spending and increases population growth we have pretty much a recipe for reduced living standards, according to the standard model. More recent work on economic growth, both empirical and theoretical, has come to conflicting conclusions about the relationship between population and growth. Some of Michael Kremer’s work suggests that larger populations increase innovation and economic growth. Becker suggests that it is not growth per se, but fertility rates that affect economic growth (what is clear is that the type of immigration will affect economic growth, with skilled immigration likely to increase growth).
It is almost certainly the case that changing immigation rates will affect the composition of economic growth, with the construction sector for example more dependent on a growing population. But it is far from clear that reducing population growth reduces economic growth.