Malthusian regime: Introduction 4

The emergence from the Malthusian trap raises intriguing questions. How is it that the link between income per capita and population growth, which had for so long been a constant of human existence, was so dramatically severed? And how does one account for the sudden spurt in growth rates?

The existing literature on the relation between population growth and output has tended to focus on only one of the regimes described above. The majority of the literature has been oriented toward the modern regime, trying to explain the negative relation between income and population growth either cross-sectionally or within a single country over time. Among the mechanisms highlighted in this literature are that higher returns to child quality in developed economies induce a substitution of quality for quantity (Becker, Murphy, and Tamura, 1990); that developed economies pay higher relative wages of women, thus raising the opportunity cost of children (Galor and Weil, 1996); and that the net flow of transfers from parents to children grows (and possibly switches from negative to positive) as countries develop (Caldwell, 1976). The negative effect of high income on fertility is often examined in conjunction with a model in which high fertility has a negative effect on income due to capital dilution add comment.

Two recent papers concerned with the Malthusian regime are Lucas (1996) and Kremer (1993). The former presents a Malthusian model in which households make optimizing choices over fertility and consumption, but it does not model the transition out of this regime. The latter develops a model in which the rate of technological progress is proportional to the size of the population. The model produces an acceleration in the growth rate of total output, as in the Post-Malthusian regime, but the level of output per capita remains constant and the demographic transition does not follow.

The goal of this paper is to describe the history described above – from the Malthusian regime, through the Post-Malthusian regime and the demographic transition, to the Modern Growth regime – in a single, unified model. At the heart of our model is a novel explanation for the reduction in fertility that has allowed income per capita to rise so far above subsistence. Most studies of the demographic transition focus on the effect of a high level of income in inducing parents to switch to having fewer, higher quality children. In our model, parents also switch out of quantity and into quality, but do so not in response the level of income but rather in response to technological progress. In particular, we argue that the “disequilibrium” brought about by technological change raises the rate of return to human capital, and thus induces the substitution of quality for quantity.

The argument that technological progress itself raises the return to human capital was most clearly stated by Schultz (1964). Examining agriculture, Schultz argued that when productive technology has been constant for a long period of time, farmers will have learned to use their resources efficiently. Children will acquire knowledge of how to deal with this environment directly from observing their parents, and formal schooling will have little economic value. But when technology is changing rapidly, the knowledge gained from observing the previous generation will be less valuable, and the trial-and-error process which led to a high degree of efficiency under static conditions will not have had time to function