Does Financial Development Contribute to Fertility Decline in Developed and Developing Countries?

Abstract

The "old-age security" hypotheses propose that financial market can affect individuals' decision to have less or more children. In previous literature, children are considered an asset and investment at low level of financial development that could bring returns and security during old age. Nevertheless, at higher level of financial development, individuals have more access to fund and opportunity for investment during old age and as a result the demand for children is less. Furthermore, increase in female labour participation rate in the economic sectors will also discourage them to have more children. The development of commercial bank and non-banking financial institutions (NBFIs) has broadened credit accessibility and investment opportunity to household over the last decades. Well-developed financial system facilitates firms to access to the credit market and enhanced production efficiency and promote increases in wages in the modern market. Household have choice to move from traditional market (low wages, high fertility rate) to work in modern sector (high wages, low fertility rate). The purpose of the study is to investigate the impact of financial development on fertility for selected developed and developing countries. We employ generalized method of moment (GMM) model using annual data from 2005 to 2011. Our results found that financial development and fertility has inverse relationship for both developed and developing countries.