Trade Theory Overlooks Role of Population Density

Earlier this month, we began an examination of the U.S. balance of trade in manufactured goods in 2009, and how it may have been impacted by population density.  (See America’s Top 20 Per Capita Trade Deficits in 2009 and America’s Top 20 Per Capita Trade Surpluses in 2009.)  Those two articles dealt with the top 20 deficits and surpluses.  But it would be wrong to draw conclusions from those two shapshots without considering what happened with the other 123 nations involved in the study. 

The following chart breaks down the 163 nations involved in the study (essentially every nation on earth with the exception of tiny island nations) into two categories – those nations above the world median population density and those nations below the median population density.  There are the same number of nations in each grouping.  Here’s the chart, which is the same as Figure 7-4 on page 125 of Five Short Blasts, but updated to include 2009 data: 

Balance of Trade vs Population Density

The difference in trade results with these two groups of nations couldn’t be more stark.  With the less densely populated nations, the U.S. had a surplus of trade in manufactured goods in 2009 of $102 billion.  With the more densely populated group of nations, the U.S. had a trade deficit in manufactured goods in 2009 of $422 billion!  There are some important points to emphasize here:

  • There are the same number of nations in each group.  The only difference is population density.
  • The group of nations above the median population density represents 77% of world’s population.
  • The group of nations below the median population density represents 75% of the world’s land mass. 
  • The 2009 results are perfectly consistent with 2005 and 2006 results.

In the previous two articles, we made lists of America’s top twenty trade deficits in manufactured goods as well as the top twenty surpluses, and then examined whether these lists were dominated by densely populated and sparsely populated nations respectively.  But I was curious to see what the results would be if we looked at it from another angle.  What if we listed the most densely populated nations on earth and the least densely populated nations?  Would we find the first list dominated by nations with whom we have trade deficits, and would we find that the least densely populated nations are dominated by U.S. trade surpluses?  (This is an angle I didn’t include in Five Short Blasts.)

The first is a list of the most densely populated nations on earth:

20 Most Densely Populated

As you can see, the U.S. has a trade deficit in manufactured goods with fifteen of those twenty nations.  So how about the least densely populated nations?  We should find few trade deficits amongs that group.  Well, not only does the U.S. not have a single trade deficit among the twenty least densely populated nations, you won’t find a single trade deficit among the thirty least densely populated. 

30 Least Densely Populated

You can’t see it on this list, but the first trade deficit that pops up on a list of the most sparsely populated nations is Armenia, number 32 on the list.  In fact, of the 55 nations less densely populated than the U.S., we have a trade deficit in manufactured goods with only 4 of them:  Laos, Sweden, Finland and Armenia.

I continue to be absolutely astounded that the relationship between population density and per capita consumption, and the consequences of this relationship for international trade, continue to elude the entire field of economics.  This relationship has the potential to shake the entire field to its core.  Yet, so fearful are economists of the scorn that’d be heaped upon them by other economists for even daring to suggest that population growth could be a problem, that not one is willing to pull his or her head out of their growth models and pseudo-mathematical formulae long enough to consider real-world relationships and effects.

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