The relationship between the level of fertility and the level of income per capita is one of the strongest observable correlations in cross-country data. The nature of the relationship between development and fertility has been studied from the perspective of the theory of growth as well as from the perspective of family economics. In Discussion Paper No 1157, Research Fellow Oded Galor and David Weil integrate these two strands of literature. They combine a model of the household's fertility/labour supply choice with a growth model in which the wages of men and women are endogenously determined.

The main concern of the study is how growth, via changes in women's relative wages, affects household decisions about the level of fertility and women's labour force participation, and how these decisions in turn feed back through the aggregate production mechanism to affect output growth. There are three components to the model. First, increases in capital per worker raise women's relative wages, since capital is more complementary to women's labour input than to men's. Second, increasing women's relative wages reduces fertility by raising the cost of children more than household income. Third, lower fertility raises the level of capital per worker. This positive feedback loop generates a demographic transition: a rapid decline in fertility accompanied by accelerated output growth.

The Gender Gap, Fertility and Growth
Oded Galor and David N Weil

Discussion Paper No. 1157, August 1995 (IM)