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Banking on fewer children: Financial intermediation, fertility and economic development


  • Carol Scotese Lehr

    () (Virginia Commonwealth University, Department of Economics, Box 844000, Richmond, VA 23284-4000, USA)


This paper shows that financial intermediation can influence fertility and labor allocation decisions by raising market wages. The increase in wages induces some households to abandon "traditional" labor intensive methods of production managed at the household level and supply labor to "modern" sector firms. Since it is optimal for households in the modern sector to have fewer children, the labor allocation decision leads to lower national fertility. A panel VAR using financial intermediation, fertility and industrial employment share data in 87 countries is estimated. The empirical results show that the data are consistent with the theoretical predictions.

Suggested Citation

  • Carol Scotese Lehr, 1999. "Banking on fewer children: Financial intermediation, fertility and economic development," Journal of Population Economics, Springer;European Society for Population Economics, vol. 12(4), pages 567-590.
  • Handle: RePEc:spr:jopoec:v:12:y:1999:i:4:p:567-590 Note: Received: 20 October 1997/Accepted: 31 August 1998

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    References listed on IDEAS

    1. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
    2. Eli Bekman & John Bound & Stephen Machin, 1998. "Implications of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1245-1279.
    3. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
    4. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
    5. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
    6. Reinhard Hujer & Bernd Fitzenberger & Reinhold Schnabel & Thomas E. MaCurdy, 2001. "Testing for uniform wage trends in West-Germany: A cohort analysis using quantile regressions for censored data," Empirical Economics, Springer, vol. 26(1), pages 41-86.
    7. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters,in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
    8. Bernd Fitzenberger & Gaby Wunderlich, 2002. "Gender Wage Differences in West Germany: A Cohort Analysis," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 379-414, November.
    9. Jacobsen, Joyce P., 1999. "Labor force participation," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(5), pages 597-610.
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    11. David Shapiro & Frank L. Mott, 1994. "Long-Term Employment and Earnings of Women in Relation to Employment Behavior Surrounding the First Birth," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 248-275.
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    Cited by:

    1. Filoso, Valerio & Papagni, Erasmo, 2015. "Fertility choice and financial development," European Journal of Political Economy, Elsevier, vol. 37(C), pages 160-177.
    2. Horváth, Csilla & Wieringa, Jaap E., 2003. "Combining time series and cross sectional data for the analysis of dynamic marketing systems," Research Report 03F13, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

    More about this item


    Financial intermediation · fertility · economic development;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance


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