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Declining fertility and economic well-being: do education and health ride to the rescue?

  • Klaus Prettner

    ()

    (Harvard Center for Population and Development Studies)

  • David E. Bloom

    ()

    (Harvard School of Public Health)

  • Holger Strulik

    ()

It is widely argued that declining fertility slows the pace of economic growth through its negative effect on labor supply. There are, however, theoretical arguments suggesting that the effect of falling fertility on effective labor supply can be offset by the associated behavioral changes. We formalize these arguments by setting forth a dynamic consumer optimization model that incorporates endogenous fertility as well as endogenous educational and health investments. The model shows that a fertility decline induces higher education and health investments that are able to compensate for declining fertility under certain circumstances. We assess the theoretical implications by investigating panel data for 118 countries over the period 1980 to 2005 and show that behavioral changes partly mitigate the negative impact of declining fertility on effective labor supply.

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Paper provided by Program on the Global Demography of Aging in its series PGDA Working Papers with number 8412.

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Date of creation: Jan 2012
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Handle: RePEc:gdm:wpaper:8412
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