Terra Incognita: The Economics of a Shrinking World

Jesus Fernandez-Villaverde and Patrick Norrick

No 12997, CESifo Working Paper Series from CESifo

Abstract: As of 2026, humanity is likely below replacement fertility. That has never happened before, not in wars or pandemics. But the real surprise is that the fall has been concentrated in low- and middle-income countries and among poorer and less educated women. We fit a single-factor model to 236 countries since 1950: the common component peaked in 1978, and what drives fertility down today are country-specific trends, 219 of them negative and not one leveling off. None of the commonly cited mechanisms can account for this pattern, so we offer a conjecture: modernity itself, which makes a third child expensive and childlessness cheap. Children come in integers, so it takes very little to move a cohort’s fertility rate from 1.8 to 1.3. And nothing in an economy pushes fertility back to 2.1. We close with the main economic consequences, in particular slow growth.

Keywords: fertility decline; demographic transition; population aging; economic growth; labor force; population projections (search for similar items in EconPapers)
JEL-codes: E24 J11 J13 O11 O40 (search for similar items in EconPapers)
Date: 2026
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Working Paper: Terra Incognita: The Economics of a Shrinking World (2026)
Working Paper: Terra Incognita: The Economics of a Shrinking World (2026)
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