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Solow meets Stone–Geary: Technological progress and the demographic transition

Tamotsu Nakamura

Metroeconomica, 2018, vol. 69, issue 4, 768-790

Abstract: This paper presents a simple yet useful framework to analyze the interactions between population growth and economic development to account for the demographic transition. The nonmonotonic relationship is derived from two key factors: Stone–Geary preferences and increasing child‐raising costs. Increase in income raises fertility through the income effect but reduces it through the substitution of the children by consumption due to increased child‐raising costs. When households are poor, fertility increases with income because the income effect is dominant due to Stone–Geary preferences. When, in contrast, they are rich enough, fertility decreases with income because the substitution effect is dominant. While the population growth rate is constant in the Solow growth model, it changes endogenously in our model. Consequently, it produces rich dynamics of income and population depending on the speed of technological progress.

Date: 2018
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Handle: RePEc:bla:metroe:v:69:y:2018:i:4:p:768-790