Toward a Unified Growth Theory

This paper develops a unified growth model capturing issues of endogenous economic growth, fertility, infant mortality, technological progress, education and environmental quality to interpret the evolution of history from Malthusian stagnation regime, through the demographic transition to modern growth. The production structure in this paper allows to explain the so-called Environmental Kurznet Curve theoretically. The model suggests that in the very early stage of development characterized by small population, low education and low technological level, the economy is trapped in a low stable steady state with very low growth rate of technological progress, zero-education and hence low suriving probability of infant which makes the population growth very small. In this stagnation the technological progress makes the pollution more polluted. In the period of demographic transition, corresponding to the industrial revolution time in Western Europe when there is a sharp increase in technological level, the infant mortality rate increases due to the pollution and hence the fertility also increases due to maximizing utility behavior of households. The infant mortality and fertility rates start decreasing when the level of technology exceeds a threshold (normalized by 1) in which technology has positive effect on environmental quality. The growth rate of technological progress plays an crucial role in demographic transition. Investment in education increases along with the increase in growth of technological progress because education get more return via supplying human capital in the future. The more investment in education for children, the less number of children the houselds raise because of the budget contraints of household. This trade-off along with the growth of technological progress make the fertility rate decreasing, then the economy enters a Modern Growth regime with reduced population and sustained growth rate of income.