Why does a labor-saving technology decrease fertility rates? Evidence from the oil palm boom in Indonesia

The introduction of new production technologies is often regarded as one of the key drivers of the historical fertility transition in the US and Western Europe. In contrast, empirical evidence on the relationship between technology and fertility in a developing country context is largely inexistent. Our paper addresses this gap by exploring the expansion of oil palm in Indonesia. Oil palm induces labor savings similar to mechanization, but is also widely adopted by smallholder farmers. We use Becker's quantity-quality model to identify different causal mechanism through which the expansion of oil palm could affect fertility rates. Our identification strategy relies on an instrumental variables approach with regency-fixed effects, in which the area under oil palm at regency level is instrumented by regency-level attainable yield of oil palm interacted with the national oil palm expansion. While a labor-saving technology could theoretically increase fertility rates by decreasing maternal opportunity costs of time, we find consistently negative effects of the oil palm expansion on fertility. The results suggest that income gains among agricultural households coupled with broader local economic development explain this effect. Specifically, local economic development seems to have raised returns to education and triggered investments into women's and children's education, which together with the direct income effect explain the bulk of the negative effect of the oil palm expansion on fertility.