Working Paper: CEPR ID: DP6384
Authors: Matteo Cervellati; Uwe Sunde
Abstract: This paper provides a unified theory of the economic and demographic transition. Individuals make optimal decisions about fertility, education of their children and the type and intensity of the investments in their own education. These decisions are affected by different dimensions of mortality and technological progress which change endogenously during the process of development. The model generates an endogenous transition from a regime characterized by limited human capital formation, little longevity, high child mortality, large fertility and a sluggish income and productivity growth to a modern growth regime in which lower net fertility is associated with the acquisition of human capital and improved living standards. Unlike previous models, the framework emphasizes the education composition of the population in terms of the equilibrium share of educated individuals, and differential fertility related to education. The framework explores the roles of different dimensions of mortality, wages and schooling in triggering the transition. The dynamics of the model are consistent with empirical observations and stylized facts that have been difficult to reconcile so far. For illustration we simulate the model and discuss the novel predictions using historical and cross-country data.
Keywords: child mortality; demographic transition; endogenous life expectancy; heterogeneous human capital; long-term development
JEL Codes: E10; J10; O10; O40; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in mortality (I12) | Fertility (J13) |
| Changes in mortality (I12) | Education investments (H52) |
| Wages (J31) | Fertility (J13) |
| Wages (J31) | Education investments (H52) |
| Adult longevity increases (D15) | Fertility (J13) |
| Adult longevity increases (D15) | Education investments (H52) |
| Lower child mortality (J13) | Total fertility (J13) |
| Population composition in terms of educated individuals (I25) | Average fertility rates (J13) |
| Human capital accumulation (J24) | Economic development (O29) |
| Economic development (O29) | Fertility (J13) |
| Economic development (O29) | Education investments (H52) |