Fertility Choice and Economic Growth: Empirical Evidence from the U.S

Article excerpt

This paper provides empirical evidence to support the proposition of Barro and Becker [1989] that fertility depends positively on the world's long-term real interest rates and negatively on real wages in an economy linked to an international capital market. The empirical evidence suggests that there is no long-run relationship among fertility choice, real wages, long-term real interest rates, and output growth in the U.S. over the period 1960-95. However, when estimating a VAR model and employing the variance decomposition analysis and the impulse response functions, the empirical results support the endogeneity of fertility choice and the proposition that real wages, long-term real interest rates, and output growth is related to changes infertility choice. The empirical results have important policy implications and provide an explanation for the decline of fertility in Western countries mainly in the last three decades. (JEL O10, J13)

Introduction

Recently, many economists, mainly on a theoretical basis, have explored the existing relationship between family behavior and economic growth. In his presidential address, Gary Becker [1988] concludes that "family behavior is active, not passive, and endogenous, not exogenous. Families have large effects on the economy, and evolution of the economy greatly changes the structure and decisions of families."

Malthus [1933] first supported the idea that population growth is a potential determinant of output growth. Then Adam Smith realized that the relevant measure of growth is output per capita and not aggregate output. Extending Malthus' work, researchers such as Schumpeter [1954], Mill [1965], Blaug [1962], and Smith [1976] developed the so-called "classical model." They adopt the view that economic growth is determined exogenously, and population growth must adjust to it in the long run. However, they argue that, in the short run, there is a positive relationship between deviations of per capita income and the rate of economic growth from their long-run values.

Extension of the classical model is the development of the "neoclassical growth model" by Solow [1956]. According to this model, economic growth is an endogenous variable which depends on population growth, while fertility is still an exogenous variable. In his pioneer studies, Becker [1960, 1973] supports the notion that fertility growth is an endogenous variable to the economic system. He develops the theoretical framework to explain that the relationship between the two variables depends on a number of socioeconomic factors such as the incentive for having children, the "quality of children," the efficiency of private capital markets, and the intergenerational transfers within the family. The major trend in literature today is the development of theoretical dynamic models which treat population, growth, and development as endogenous variables, simultaneously determined, rather than separate outcomes of different economic systems.

Recently, many economists such as Becker [1988, 1992], Becker and Barro [1988], Barro and Becker [1989], Ehrlich [1990], Becker et al. [1990], Ehrlich and Lui [1991], Wang et al. [1994], Zhang and Zhang [1997], and Yip and Zhang [1997] treat both population and income growth as endogenous variables in an effort to develop a coherent model of economic growth and explain the process of dynamic economic growth [1] based on microfoundations of economic theory. Furthermore, as Becker [1988] pointed out, there is very little literature that considers the implications and interrelations of fertility decisions for macroeconomy and economic growth.

However, over the last two decades, most of the work on endogenous population and economic growth has been theoretical. Only a few empirical studies have examined the effects of population growth and fertility on economic growth [Ehrlich and Lui, 1991; Winegarden and Wheeler, 1992; Brander and Dowrick, 1993; Wang et al. …