Economic Analysis of Fertility Rate Fluctuation

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Traditional approaches to growth theory have modeled the process of growth as arising from decisions to invest in physical capital and from technological progress. A recent model by Barro and Becker (1989) has incorporated fertility decisions, or decisions about the number of children to have, into a growth theoretic context. The welfare of children (through their per capita consumption) is incorporated into their parents utility. Since consumption must be sacrificed to educate children, the investment decisions become more complex in such a setting. The model can further be enriched by allowing parents to invest in the human capital of their children in order to raise their productivity. We propose to study the implications of introducing technologial progress and human capital into the model of endogenous fertility.One of the implication of technical progress is that steady states are no longer in levels ; they represent growths path of per capita variables like output, consumption on capital. We then show that the dynamic behavior of physical capital will be monotonic or oscillatory, depending on the elasticity of a certain "altruism" function which may also be viewed as the elasticity of an inverse demand curve for children. This elasticity, which is equal to unity in the Barro and Becker model, also plays a major role in determining the existence of multiple steady states. From an empirical perspective multiple steady states may be useful to explain persistent differentials between growth rates of some poor and rich countries.