A THEORY OF ECONOMIC DEVELOPMENT WITH ENDOGENOUS FERTILITY

Ceyhun Elgin

Macroeconomic Dynamics, 2012, vol. 16, issue 5, 686-705

Abstract: In this paper I build a unified model of economic growth to account for the time-series evolution of output, fertility, and population in the industrialization of an economy. Specifically, I merge the unified growth models of Galor and Weil [American Economic Review 90 (2000), 806–828] and Hansen and Prescott [American Economic Review 92 (2002), 1205–1217] to capture the importance of human capital formation, fertility decline, and the transition from agriculture to industry in transition from stagnation to growth. Moreover, I also incorporate young adult mortality into the model. Initially, the aggregate human capital and return to education are low and the mortality rate is high; therefore parents invest in quantity of children. Once sufficient human capital is accumulated and mortality rates are reduced, thanks to increasing life expectancy, with the activation of the modern human capital–intensive sector, parents start to invest in the quality of their children. The simulation of the model economy improves upon the quantitative performance of the existing literature and successfully captures the evolution of fertility, population, and GDP in the British economy between 1750 and 2000.

Date: 2012
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Working Paper: A Theory of Economic Development with Endogenous Fertility (2010)
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