Child Mortality Decline, Inequality and Economic Growth

Abstract

The aim of this paper is to analyze the effect of child mortality and fertility reductions on economic growth. We develop a two period overlapping generations model where altruistic agents differ in their human capital endowment. Parents care about the number of their surviving children and the future level of human capital of each of them. Children probability of surviving to the adult age is an increasing concave function of parent’s human capital. This framework allows us to generate the demographic transition and has the effect of creating multiple development regimes such that the growth rate of the economy depends on initial human capital endowments. For a low level of income, the economy converges to a malthusian steady state. Here, the relationship between population growth and income is positive: small increases in income lead to reductions in child mortality and increases in the number of children. In addition, the optimal spending in children’s education is zero. For a high level of income, the economy is on a high development path. In particular, we show the existence of a quality-quantity trade off: as income rises, child mortality decreases and parents choose to have a lower number of children and to devote more resources to children’s education spending. This leads to a decreasing growth rate of population and a higher growth rate of human capital.