Fertility Behavior in Developing Economies: An Investment Approach

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Abstract

By studying intergenerational benefits from children, this paper shows that the economic analysis of fertility behavior in developing economics can provide a systematic discussion of this behavior. The major hypotheses set forth are: 1) the effect of income on fertility depends on the source and timing of income; 2) in a lifetime context, parents, or would-be parents, who have higher incomes at young ages compared with the income they anticipate at old age, are expected to have a higher demand for children; and 3) the reverse of the latter is predicted for parents who anticipate relatively higher incomes at old age. These hypotheses follow the idea that, in the absence of other appropriate means for intertemporal transfers of wealth, parents even out the lifetime welfare through fertility behavior. Under these circumstances, fertility rates are expected to increase in communities where children abandon their traditional commitments to their aging parents, as may happen during periods of economic and cultural transition. A decline in mortality rates will induce lower fertility. This model suggests that a tax-financed social security scheme along with family planning will be conducive to a reduction in fertility. A test on data from an Indian village in 1968-69 suggests that in a traditional setting there is a correlation between household welfare, measured by income or assets, and the presence of grown children. Income has a positive effect on fertility when the parents' incomes comes from labor rather than human and nonhuman capital which provides income at later stages of life. Longitudinal data depicting income, savings, and fertility patterns over time should prove more promising in exploring the issues discussed.