Fertility

By the end of the 20th century, fertility and mortality rates had declined significantly in both developed and developing countries, a pattern known as demographic transition. There are many competing theories to explain demographic transition by linking it with variations in the opportunity costs of fertility. One body of literature explains demographic transition as a consequence of technological change and increased education. Scholars argue that technological progress provided households with more resources, which increased fertility in the early stages of the transition (Becker & Lewis, 1973; Becker, Murphy, & Tamura, 1990; Galor & Weil, 2000; Hansen & Prescott, 2002). However, eventually due to higher returns from human capital investment, households were able to reallocate these increased resources toward quality of child rearing rather than quantity of children, and thus fertility declined.

Another group of economists attributes the decline in fertility to the rise in income per capita. Alternatively, some researchers emphasize the role of the decline in the gender wage gap. Central to both theories is the assumption that the positive effect on fertility brought about by the rise in wages was overcome by the negative effect caused by the rising costs of raising children. If an increase in female wages is not sufficient to induce a significant increase in female labor force participation, fertility increases in response to higher household income. For a decline in fertility to occur, the relative wages of women with respect to the wages of men need to sufficiently increase to dominate the income effect.

Another favored theory suggests that fertility decline is triggered by mortality decline. Zvi Eckstein, Pedro Mira, and Kenneth I. Wolpin show that reduction in child mortality is the most important factor explaining the fertility decline in Sweden, whereas increases in real wages can explain less than one third of the fertility decline. Parents are less concerned about the survival of their children given the reduction in infant and child mortality, thus decreasing fertility. Although this argument explains a significant portion of the reduction in fertility, it cannot explain the realized reduction in the net rate of reproduction and population growth around the world. This inconsistency between the existing models and data can be resolved if an uncertainty about the number of children that will survive is introduced into the model. In a high mortality environment, parents increase the number of births as a precautionary measure, which may lead to a more than desired number of children and a higher net [Page 564]rate of reproduction. This increase in fertility is known as the hoarding effect. Decreasing mortality rates can decrease precautionary demand and thus result in a lower net reproduction rate. Matthias Doepke, on the other hand, argues that the sequential nature of fertility choice can mitigate the precautionary demand for children. Because child mortality mostly happens early in life, parents can replace children as they die to produce the desired number of children. However, empirical micro studies estimate the replacement effect to be less than 1, mostly around 0.2. Using panel data from a set of developing countries, studies have shown a positive relationship between child mortality and fertility and argue that it is due to the insurance effect because the replacement effect is so small.

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