Cheap Children and the Persistence of Poverty

Abstract

This paper develops a theory of fertility that offers an explanation for the persistence of poverty within and across countries. If educated individuals have a comparative advantage in raising educated children then parental fertility choice is shown to give rise to a poverty trap, in which the poor choose high fertility rates with low investment in child quality. Moreover, the impact of child quality choice on economic performance is amplified by the diluting effect of higher fertility on physical capital accumulation. The theory proposes insights regarding the effects of inequality, globalisation and life expectancy on economic growth and demographic transitions. This paper develops a theory of fertility and child educational choice that offers an explanation for the persistence of poverty within and across countries. The joint determination of the quality (education) and quantity of children in a household is studied under the key assumption that individuals’ productivity as teachers increases with their own human capital. In contrast, the minimum time cost associated with raising a child regardless of the child’s quality ‐ the quantity cost ‐ is not affected by parental education. As a result, the price of child quantity relative to the price of child quality increases with individuals’ wages. In particular, for low-wage individuals, for whom the opportunity cost of time is low, children of minimal quality are ‘cheap’. This assumption, therefore, generates a comparative advantage for the poor in child quantity, whereas high-wage (educated) individuals have a comparative advantage in raising quality children. Consistent with the well-known evidence, poor households thus choose relatively high fertility rates with relatively low investment in their offspring’s education; and therefore, their offspring are poor as well. In contrast, high-income families choose low fertility rates with high investment in education, and therefore, high income persists in the dynasty. Evidence from the US, provided by Hanushek (1992), suggests that a trade-off between quantity and quality of children does indeed exist. Hanushek argues that movements in family size could explain over half the variance in some test scores, and that the elasticity of achievements with respect to the number of children in the family is )0.03, implying that the annual achievement growth of each child in a family will fall about 2% when a second child is added and about 0.5% when a sixth child is added. 1