Demographic Transition and Fertility Rebound in Economic Development*

Abstract

Recent evidence on the "fertility rebound" offers credence to the idea that, from the onset of early industrialization to the present day, the dynamics of fertility can be represented by an N-shaped curve. An overlapping generations model with parental investment in human capital can account for these observed movements in fertility rates during the different stages of demographic change. A demographic transition with declining fertility emerges at the intermediate stage, when parents engage on a child quantity-quality trade-off. At later stages, however, the process of economic growth generates sufficient resources so that households can rear more children while still providing the desirable amount of education investment per child.

Social externalities, endogenous childcare costs, and fertility choice

“…Having a child is costly in terms of the time spent on child-rearing. In modeling the child-rearing costs, we adopt a more general approach by allowing for direct costs (Hazan and Zoabi 2006;Ohinata and Varvarigos 2019) and opportunity costs (e.g. de la Croix and Doepke 2003).…”

“…Due to real wage growth, this change, eventually, leads to fertility decline. 2 See, e.g., Bongaarts and Sobotka (2012), Day (2016), Dominiak et al (2015), Futagami and Konishi (2019), Goldstein et al (2009), Hirazawa and Yakita (2017), Lacalle-Calderon et al (2017), Luci and Thévenon (2011), Mavropoulos and Panagiotidis (2021), Myrskylä et al (2009), and Nakagaki (2019), and Ohinata and Varvarigos (2019). , 1960, -2010, the following countries are included: Austria, Australia, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, the UK, and the USA.…”

“…Second, the literature does not provide a clear explanation for the factors causing a rebound in the average fertility rates. 3 Although Day (2016), Futagami andKonishi (2019), andHirazawa andYakita (2017), and Ohinata and Varvarigos (2019) achieved significant progress in analyzing the forces behind the recent fertility rebound, clear insights into some important aspects of this phenomenon are still missing. These studies on the fertility rebound identified that the decreasing relative costs of child-rearing (childcare and education costs) and longevity are preventing further decline or driving the fertility rates upward.…”

“…These studies on the fertility rebound identified that the decreasing relative costs of child-rearing (childcare and education costs) and longevity are preventing further decline or driving the fertility rates upward. However, these studies are based on models that lack some important features: Social externalities or human capital accumulation are not considered (Day 2016;Futagami and Konishi 2019); the fertility rebound cannot be explained if the opportunity cost of child-rearing is used instead of the direct cost (Ohinata and Varvarigos 2019); and the fertility rebound cannot be explained if the old generation is not allowed to work (Hirazawa and Yakita 2017). Finally, the literature does not provide a comprehensive explanation for the relationship between the fertility rebound observed in the cross-section of agents (Hazan and Zoabi 2015) and the dynamic rebound in the average fertility rates.…”

“…Our paper also differs from papers that address the fertility rebound from a dynamic perspective. Unlike Futagami and Konishi (2019), Hirazawa and Yakita (2017), and Ohinata and Varvarigos (2019, by accounting for the heterogeneity of agents, our model captures social externalities stemming from differences among agents in consumption, human capital, and fertility. In our model, the rebound in the average fertility rates does not require a decrease in inequality, as in Day (2016).…”