ECON 450 Development Economics - …publish.illinois.edu/henriqueveras/files/2016/01/Lecture19.pdfHow can you encourage people in developing countries to have fewer children? ... Henrique

Quantity vs QualityThe Demand for Children in Developing Countries

Cash for Condoms?The Consequences of High Fertility

ECON 450Development Economics

Population Growth and Economic Development

University of Illinois at Urbana-Champaign

Summer 2017

Henrique Veras de Paiva Fonseca ECON 450 Development Economics



Introduction

How can you encourage people in developing countries to havefewer children?




Introduction

From last discussion:

Cd = f (Y ,Pc ,Px , tx)




Introduction




Outline

1 Quantity vs Quality

2 The Demand for Children in Developing Countries

3 Cash for Condoms?

4 The Consequences of High Fertility: Some ConflictingPerspectives




Quantity vs Quality

One of the most commonly accepted theories about the causesof the demographic transition is the tradeoff "quantity vs quality"advanced by the economist Gary Becker from University ofChicago.Becker used basic economic assumptions of maximizingbehavior, stable preferences, equilibria, and markets to explorefamily decisions such as marriage, divorce, monogamy,polygamy, number of children, etc.




Quantity vs QualityThe "Octuplets"




Quantity vs Quality




Quantity vs Quality




Quantity vs Quality




Quantity vs Quality

The idea of the model is that the income elasticity with respect tochild quality is greater than that with respect to child quantity.

That is, as household’s income increases, parents invest more inchild’s quality than quantity.

The implication is that richer families (nations) would prefer asmall number of "higher quality" children and poor families(nations) would prefer many "low quality" children.




Quantity vs Quality







Quantity vs Quality







Quantity vs Quality

"As households get richer, for the most part they do not buylarger numbers of cars or houses, but instead go for higherquality (a BMW instead of a Chevy, or a house with morebedrooms and bathrooms)." (Doepke, 2014)




Quantity vs Quality

Can this theory be empirically tested?Cross-country correlations corroborate Becker’s idea.

We do see that high income countries experience the lowest fertilityrates and highest investments in their children’s education.Developing nations are the ones with the highest birth levels andlowest investment rates in education of their offspring.

However, can we interpret this correlation as causal?




Quantity vs Quality

We may be suspicious that poor families with few children willinvest more in their remaining children.Moreover, there is possible a reverse causality problem as well.So, how could we empirically assess the "causal" relationship?




Quantity vs QualityA Natural Experiment




Quantity vs QualityNatural Experiments

The studies find that in developing countries, families that haveunexpected twins do NOT end up investing less in each child.

At this particular margin, there does not seem to have a tradeoffbetween the quantity of children and the quality of children.





We could also look at the China’s "One Child Policy" as a sourceof exogenous shock to the number of children in families.

Families with smaller number of children do not seem to investmore in each particular child.

So, how do we reconcile the theory and the "counter-intuitive"empirical findings?





The pathway of interest is that as women in developing nationsbecome better educated, they:

1 demand a smaller number of children, and2 are able to invest more in the education of their children.

Therefore, families will be smaller and each child will, onaverage, have higher investment in education.





Policies aiming only at reducing the number of children are proneto fail, given that this wouldn’t affect incentives to switch quantityfor quality.It seems here that the path to be taken is through the educationof the mothers in order to achieve a smaller and better educatedsociety.




Outline



3 Cash for Condoms?





The Demand for Children in Developing Countries

Children in poor societies are seen partly as economicinvestment goods in that there is an expected return in the formof both child labor and the provision of financial support forparents in old age.In deciding whether or not to have additional children, parentsare assumed to weigh private economic benefits against privatecosts.




The Demand for Children in Developing Countries

Benefits include the expected income from child labor, usually onthe farm, and eventual financial support for elderly parents.The elements of cost are the opportunity cost of the mother’stime (the income she could earn if she were not at home caringfor her children) and the cost of educating children - the financialtrade-off between having fewer "high-quality" high-cost, educatedchildren with high-income-earning potential versus more"low-quality" low-cost, uneducated children with much lowerearning prospects.




The Demand for Children in Developing CountriesImplications for Development and Fertility

In short, expanded efforts to make jobs, education, and healthmore broadly available to poverty groups in general and womenin particular will not only contribute to their economic and psychicwell-being (i.e., to their development) but also contributesubstantially to their motivation for smaller families (i.e., theirfreedom to choose), which is vital to reducing population growthrates.Where such motivation exists, well-executed family-planningprograms can then be an effective tool.




Outline



3 Cash for Condoms?





Cash for Condoms?

In his book, Easterly put forward the argument that policiespursued by World Bank and IMF to reduce fertility rates indeveloping nations essentially don’t work.

"Cash for Condoms"

The "Mith of Unwanted Births"According to these agencies, by 1999 there were over 150 millioncouples with an unmet need for contraception.Solution: aid on contraceptives.




Cash for Condoms?The Myth of Unwanted Births

The key point of the whole book is: "people respond toincentives".Here, he argues, condoms is just like any other good that thefree market can supply.Households, therefore, could weight pros and cons of having anadditional child.





Since the price of condoms is negligible compared to the cost ofraising a child, people have incentive to choose condoms overbabies if babies are "unwanted".The choice for kids over contraceptives reveals that actuallylow-income families value their work less (recall themicroeconomics of fertility choices) and kids are source ofinvestments.





Suppose you work as a private consultant for the World Bank.The bank asks you to provide an empirical test for the efficacy ofthe program "Cash for Condoms" in, say, Ethiopia.How would you test this idea?

In other words, what would be the "Experimental Ideal"?




Outline



3 Cash for Condoms?





The Consequences of High Fertility

For many years, development economists and other socialscientists have debated the seriousness of the consequences ofrapid population growth.On the one hand, we must recognize that population growth isnot the only, or even the primary, source of low levels of living,eroding self-esteem, and limited freedom in developing nations.




The Consequences of High Fertility

On the other hand, it would be equally naive to think that rapidpopulation growth in many countries and regions is not a seriousintensifier and multiplier of those integral components ofunderdevelopment.




The Consequences of High FertilityGoals and Objectives: Toward a Consensus

In spite of what may appear to be seriously conflicting argumentsabout the positive and negative consequences of populationgrowth, a common ground has emerged on which many peopleon both sides of the debate can agree.The following propositions constitute the essential components ofthis intermediate or consensus opinion.





Population growth is not the primary cause of low levels of living,extreme inequalities, or the limited freedom of choice thatcharacterize much of the developing world.The problem of population is not simply one of numbers butinvolves the quality of life and material well-being.





Rapid population growth does serve to intensify problems ofunderdevelopment and make prospects for development thatmuch more remote.As noted, the momentum of growth means that, barringcatastrophe, the population of developing countries will increasedramatically over the coming decades, no matter what fertilitycontrol measures are adopted now.





It follows that high population growth rates, though not theprincipal cause of underdevelopment, are nevertheless importantcontributing factors in specific countries and regions of the world.




Concluding Remarks

We conclude with a note of optimism. Fertility rates in many ofthe poorest countries, such as Bangladesh and most of thecountries in sub-Saharan Africa, have experienced an impressivedecline. Population experts have lowered their estimates of worldpopulation growth for coming decades.In no small part, this decline is the result of more widespreadavailability of family planning. This change helps set the stage foran opportunity for successful development efforts in the comingyears.




Exercise

In 2015, Niger was the country with the highest fertility rate: animpressive rate of 6.76!Use your knowledge on population growth and development topropose some policy suggestions to the government of Niger todeal with this issue.


Documents

ECON 450 Development Economics - …publish.illinois.edu/henriqueveras/files/2016/01/Lecture19.pdfHow can you encourage people in developing countries to have fewer children? ... Henrique