Demographic Transition, Income Distribution and Economic Growth

This work investigates the links between fertility choice, the dynamics of income distribution and economic growth. We use a simple model of fertility choice in conjunction with the well-documented differences in returns to human capital across rich and poor to model the co-determination of family size and investment in human capital. We show that fertility choice, income distribution, and economic growth affect each other in a way that produces an inverted U-shaped dynamics: The first stage is characterized by an increase in the average rate of fertility and widening income inequality, while income per capita may or may not grow. It is only in the second stage that the average fertility declines and income becomes more equally distributed; at this later stage the economy also becomes more human-capital abundant and growth of income per capita takes off. This model therefore comes very close to the documented facts about epochs of demographic transition with relaying neither on "near rationality" arguments nor on non-economic objectives.

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Working or Discussion Paper
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JEL Codes:
D03; J01; O00
Series Statement:
Working Paper No. 42-96

 Record created 2018-08-01, last modified 2020-10-28

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