Small families are good for economic development.

China’s famous one-child policy was imposed because the Chinese leadership thought that smaller families would help China develop economically.  Soon afterwards, China achieved over three decades of the fastest economic growth ever recorded.  The dramatic fall in fertility rates was probably only a small part of their success, but there is widespread agreement that it is part of their success because:

  1. Smaller families produce children with more human capital.  They tend to be healthier, and better-educated than children in larger families.  This is because family resources are more concentrated on fewer offspring and so each child gets a larger investment.  In poor countries, the children in larger families are shorter than children in smaller families because the food doesn’t have to feed as many mouths smaller families.  There is a similar rule of thumb in biology known as r/K selection theory.  Some animals like rats and sea turtles produce high quantities of offspring and invest very little in each one resulting in very low rates of survival.  Other animals like whales, arctic terns and naked mole rats produce very few offspring and invest a large amount in the quality of each one so that most survive.
  2. Parental investment is only one part of what it takes to raise a child.  Some researchers go so far as to argue that parental involvement has almost no effect on child outcomes which seems like a pretty extreme assertion to me because I am a parent and I don’t like to think that my efforts are a waste.  But it isn’t controversial to argue that peers, teachers, neighbors, and extended family have a bigger impact on most children than their parents.  There is a lot of truth in the cliche, ‘it takes a village to raise a child.’  One way the effect of family size on society is measured is the dependency ratio. It is the ratio of dependents (children and elderly) over the working aged population.  Countries with higher dependency ratios tend to develop slower than countries with lower dependency ratios.  Most countries grow faster during their “demographic dividend” when their dependency ratio is low.

Both reasons boil down to the idea that many children dilute resources and lead to lower quality children, but at different levels of society.  For example, in the US if a few families have large numbers of children, there isn’t much penalty for each child because most of the cost of educating and providing healthcare for large families is borne by the rest of American society.  For example, private health insurance does not charge more for insuring a family with 12 children than a family with 1 child even though the actual costs of providing healthcare for the large family are 12 times larger.  Most American kids to to public school and the average cost per student of a year of public high school in America was almost $11,000 in 2013.  It would be impossible for most Americans to educate their children without help from American society.  Even at private colleges, larger families get more financial aid because the ubiquitous FAFSA formula awards more aid to larger families.

A society with a high dependency ratio like Niger where the average family size is 7.6 is going to have less social sharing of resources because there are fewer resources that each household can afford to contribute to other families after taking care of all their own kids.

But it is also possible to have fertility rates that are so low that they hurt long-run economic development.  For example, if the fertility rate were zero, the world would come to an end after the current generation dies off and the current generation would die off rather quickly without any younger people to care for them in their old age.   That would be an economic and humanitarian disaster on a scale equivalent to a global nuclear holocaust.

What is the optimal fertility rate for economic development?  I’ve never seen anyone try to estimate it, but many scholars seem to idealize the replacement fertility rate as an approximate policy goal.  That would be 2 kids per family if nobody died without reproducing.  At current mortality rates, it works out to an average of about 2.1 children per family in the US.

Below are some wonkish excerpts from academic economists about research on demography and development in the 2001 book Population Matters: Demographic Change, Economic Growth, and Poverty in the Developing World by Nancy Birdsall, Allen C. Kelley, and Steven Sinding.

No social phenomenon has attracted more attention in the last half‐century than the ‘population explosion’—that surge of population numbers rising almost threefold from 2.5 billion in 1950 to over 6 billion at the turn of the millennium, and continuing at a diminishing pace to level out at as much as 11 billion in the middle of the twenty‐second century. Given the exceptional complexity and diversity of the various impacts of rapid demographic change and rising population numbers, assessments of the consequences of the population explosion have varied widely, ranging all the way from the view that more population growth leads to more prosperity to forecasts that rapid population growth would precipitate wide‐ranging catastrophes (famines, ecological collapses, wars, natural resource depletion, and the like).1

 the findings in this volume strike some new themes…

First, in contrast to assessments over the last several decades, rapid population growth is found to have exercised a quantitatively important negative impact on the pace of aggregate economic growth in developing countries. The finding, as discussed below, bodes well for the future, as population growth rates decline, even as it helps account for low economic growth in the past.

Secondly, rapid fertility decline is found to make a quantitatively relevant contribution to reducing the incidence and severity of poverty. Though an association between poverty and high fertility has long been noted, research in this area has rarely gone beyond association to causality, and has advanced slowly given the challenges of empirical assessment. The new findings suggest more strongly than before that past high fertility in poor countries has been a partial cause of the persistence of poverty—both for poor families that are large, and via the kinds of economy‐wide effects that Malthus theorized about, for poor families even if they are small. As with the finding that rapid population growth affects economic growth, this bodes well for the future, since fertility is declining almost everywhere in the developing world.

Finally, the impact of rapid demographic change on the rural environment and development is found to be mixed—above all, a minor player in a much larger story about initial conditions and broad policy effects. This finding calls attention to the relevance of development policy writ large—of policies having to do with agricultural prices, rural infrastructure, the urban labor market, and the financial sector—to whether demographic change and more narrowly defined ‘population policies’ affect for good or ill rural residents, still the majority in the developing world.

Dependency Ratios:

…John Bongaarts’s analysis of dependency burdens in the developing world (Ch. 3) is… a critical starting‐point for much of what follows in this volume. Bongaarts emphasizes that declining fertility, now under way to one degree or another in all regions of the world, will result in substantially changed age structures and distribution, with gradually reduced proportions of the population under age 15 and enlarged proportions over age 65. As countries move through the demographic transition of falling mortality followed eventually by falling fertility, they face first a period of increasing child‐dependency ratios, then of decreasing child‐dependency ratios as a larger proportion of the population moves through the working ages, and eventually of increasing old‐age‐dependency ratios.

The effect of fertility decline in the second intermediate stage (through which virtually all developing countries have passed and will be passing in the latter twentieth and early twenty‐first centuries) is a one‐time ‘demographic bonus’ or ‘window of opportunity’—a period of as many as 50 years during which an initially high ratio of the working age to the dependent population gradually declines. After a country has passed through this period, it returns to a more or less stable child‐dependency ratio (and a higher aged‐dependency ratio), at new lower levels of both fertility and mortality.

Changes in the dependency ratio are driven mostly by fertility decline and less by changes in mortality. This is simply because mortality affects all parts of the age distribution while the fertility effect has a strong immediate impact on the child‐dependency ratio, and then gradually works its way through the entire age distribution. In some developing countries, however, where the initial phase of mortality decline has concentrated on infants and youth, the mortality decline has reinforced the impact on age distribution of fertility decline.

So the duration and pace of fertility decline, and the extent to which mortality decline is disproportionately concentrated on infants and children, affect both the (p.9) duration and impact of the so‐called window of opportunity. The faster the decline, the larger the potential benefits of a relatively high ratio of working‐age to dependent ages, but the shorter the period the window will remain open. The period of the window of opportunity is characterized by (1) more workers producing more total output, if they are productively employed; (2) greater accumulation of wealth, if savings occur and are productively invested; and (3) a larger supply of human capital, if appropriate investments are made in its formation.

Demography & Economic Growth

Declining fertility and mortality, and to a much smaller extent, larger populations and higher densities, have all spurred economic growth. The only trend that has apparently slowed growth for the average country is a decline in the growth rate of the working age population. Of course many of the poorest developing countries that are still in a relatively early stage of fertility decline can look forward to increases in the size of the working‐age population for many years to come.

Why should a relatively larger working‐age population contribute to positive economic growth? Economists have long theorized that savings contribute to higher levels of per capita income (by financing higher investment and thus higher output per person), and more recently that higher savings and investment may contribute to sustained rates of income growth as well. In their chapter (Ch. 6) Ronald Lee, Andrew Mason, and Tim Miller, using household survey data from Taiwan on earnings, estimated savings, and fertility and mortality, simulate increases in savings rates and in accumulated wealth on the basis of a life‐cycle model of savings behavior. The life‐cycle model is driven by the kinds of changes in the youth‐dependency ratio and the rapid increases in working‐age population that Taiwan and other East Asian countries have experienced in the postwar period due to their rapid fertility declines.

…Williamson …and others …see changes in age structure in East Asia in the least three decades as an important contributor to that region’s large upward swings in savings and investment over the same period. The resulting high savings and investment levels were one of many factors that set the stage for that region’s long and sustained period of historically unprecedented economic growth. Williamson concludes from cross‐country statistical analysis that demographic changes, especially the increase in the working‐age population and the increase in savings induced by changes in (p.11) dependency, can be associated with as much as one‐third of the total average annual per capita growth rate of about 6 percent in East Asia in that period.

…though fertility decline is the primary impetus to the change in age composition that generates the demographic bonus, the statistical results point to mortality decline as an important factor in raising economic growth rates, despite the obvious initial and partial result of higher population growth.7 Mortality decline has long been assumed by demographers to catalyze, with a lag, a subsequent fertility decline—this is at the heart of the theory of the demographic transition. In addition, the economic models suggest that mortality decline more directly improves growth prospects—possibly by increasing the private incentives to invest in human capital, or because it is associated with morbidity declines that raise productivity.

…At the same time, the likelihood of reverse causality out there in the world raises another issue. Reverse causality (to repeat, meaning that fertility and mortality decline may be outcomes as well as or instead of causes of economic growth) creates a methodological problem. On the one hand, its likely presence has led careful scholars to avoid making strong statements about the size of any effect of fertility or mortality change or any other demographic change on economic growth. At the same time, reverse causality if present implies that even an initially small impact of fertility decline in raising growth prospects (by reducing youth dependency for example) could, over time, induce a mutually reinforcing process with larger cumulative effects, as the resulting economic growth contributes to further fertility decline, leading to more economic growth and so on.

…Another point: even the latest and most technically careful aggregate macro models do not take explicitly into account the potential powerful impact of female labor force participation on economic growth, and the link between declining fertility and increased female labor force participation. Declining fertility and rising female labor force participation may both be the outcome of increases in the opportunity cost of women’s time in child‐rearing, in turn due to rising levels of education and/or to increasing demand for labor in the formal sector. Rising female labor force participation means that the growth in total work participation increases even faster than the growth in the size of working‐age population. The ‘demographic bonus’ thus may be realized not only through shifts in the age structure but through increases in the participation of women in the formal labor force that fertility decline encourages or at least permits.

…Malthus noted at the level of entire societies that high fertility would likely worsen income distribution and increase poverty by increasing the price of food and reducing the price of labor—economic effects in large interacting markets that need to be examined at the macroeconomic level.

…Robert Eastwood and Michael Lipton (Ch. 9) …estimate that had the average country in this group of 45 countries reduced its birth rate by 5 per 1,000 throughout the 1980s (as in fact many countries did) the average country poverty incidence of 18.9 percent in the mid‐1980s would have been reduced to 12.6 percent between 1990 and 1995.12 The statistical work suggests that about half the estimated decline in poverty over the period in the countries studied can be attributed to increases in economic growth and half to changes in the distribution of consumption that helped the poor.

Eastwood and Lipton also show that the poorer the country and the higher its initial level of fertility, the greater the effect of declining fertility on a decline in absolute poverty.

…There is little debate that poverty and large family size go hand in hand. Eastwood and Lipton’s study and Thomas Merrick’s (Ch. 8) refer to dozens of empirical analyses confirming that in today’s developing countries larger households have higher poverty incidence. Moreover, among poor households, those that have more children invest less in children’s education and health, and systematically see worse health outcomes associated with pregnancy for mothers.14 …

Population, Agriculture, and Natural Resource Use

…though rapid population increase may encourage technological innovation that leads to increased output, such population increase can also have a negative impact, especially in the absence of an adequate policy and institutional environment—that is, an environment that creates incentives for individuals and societies to manage natural resources in a sustainable manner. On the one hand, the potential negative effect of population growth has been and can be mediated by policy and practices. This is particularly the case with respect to output and land productivity.22On the other hand, as Pender puts it, without collective action, population density can make things worse in terms of agricultural output, land productivity, and most important in terms of human welfare.
…Collective action includes in this instance the capacity of societies to develop the necessary policies, for example protection of property rights and appropriate pricing of water, and the necessary institutions, including rules for sustainable use of common property resources.
…In summary, the chapters in this volume, …strengthen the proposition that the demographic transition and the reductions in rates of population growth throughout most of the developing world in the last few decades have contributed and are contributing to improvement in the lives of that world’s poor.


Posted in Development

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