Abstract
It is now conventional wisdom that institutions shape household fertility choices, especially in developing countries. However, deeper insights into the mechanisms at play are still needed. This paper develops a game-theoretical framework with a simple overlapping-generations model to show how a typical household may come to prefer bearing and raising numerous children as a savings scheme for retirement and not rely on conventional outlets for saving when facing weak institutions. On the one hand weak institutions increase the risk that individuals may lose their savings if relying on conventional outlets. On the other hand, childbearing as an investment/savings scheme carries with it the risk that disguised or complete unemployment may prevent grown children from providing the expected old-age financial support. The typical household thus trades off between both types of risks, yet with more control in the latter case, as the likelihood of unemployment can be reduced by carefully selecting a child quality-quantity strategy. Mild conditions are sufficient to show that sound institutions induce less fertility and foster private saving and oldage consumption. A simple voting experiment unveils a tricky socio- economic dynamics whereby wealthier households may have stakes supporting weak institutions.
Highlights
Many countries in Sub-Saharan Africa and the Middle East are confronted with a unique development challenge characterized by persistently high fertility rates at the same time that their economies are struggling to generate enough employment and economic opportunities for the fast growing number of young people
On the other hand, improving the business environment by setting up sound institutions and rule of law will trigger the transition of these countries to a new demographic regime with a population growth that is more manageable in terms of social goods provision
This paper offers an investigation into the causes of fast population growth and highlights the key role of the institutional framework that underlies economic activities
Summary
Many countries in Sub-Saharan Africa and the Middle East are confronted with a unique development challenge characterized by persistently high fertility rates at the same time that their economies are struggling to generate enough employment and economic opportunities for the fast growing number of young people. Policies and institutions that promote inclusive growth may allow those countries to reap the demographic dividends of their population growth. On the other hand, improving the business environment by setting up sound institutions and rule of law will trigger the transition of these countries to a new demographic regime with a population growth that is more manageable in terms of social goods provision.
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