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Demographic Change and Long-Run Development$

Matteo Cervellati and Uwe Sunde

Print publication date: 2017

Print ISBN-13: 9780262036627

Published to MIT Press Scholarship Online: May 2018

DOI: 10.7551/mitpress/9780262036627.001.0001

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The Demographic Transition and Long-Term Development

The Demographic Transition and Long-Term Development

(p.1) 1 The Demographic Transition and Long-Term Development
Demographic Change and Long-Run Development

Matteo Cervellati

Uwe Sunde

The MIT Press

Abstract and Keywords

This introductory chapter discusses the role of the demographic transition as a key turning point for economic development. It begins by describing the stylized pattern of the demographic transition and detailing the facts regarding similarities and differences across countries. By looking at the close links between demographic and economic development, the chapter highlights the different mechanisms through which the demographic transition affects economic growth. It also illustrates the implications of the nonlinear dynamics of the demographic transition for economic development through the human capital-acquisition channel; addresses the fundamental determinants of the transition; and provides an overview of likely implications for future development.

Keywords:   demographic transition, economic development, economic growth, human capital acquisition, fundamental determinants, nonlinear dynamics, future development

Problems of transition are neglected as if they did not exist—as if numbers could be changed at will and without repercussions on the economy and society. The abstraction is a dangerous one. It neglects the fact that [… ] processes of population change are neither completely flexible nor frictionless.

Notestein, [1953] 1977, 140

1.1 Introduction

The demographic transition is commonly referred to as one of the “best-documented generalizations in the social sciences” (Kirk 1996). It describes the transition of a population from a regime characterized by high fertility and mortality to a regime with low fertility and mortality. The patterns of this transition exhibit striking similarities across countries and times. While demographers have focused mainly on documenting the patterns of the transition and describing similarities and differences across countries and times, economists have begun to incorporate the demographic transition into their models as a central turning point in the process of long-run economic development because the decline in fertility and mortality is an important cofactor of economic development. In particular, the patterns of demographic dynamics are reflected in the dynamics of factors of production, such as education, health, effective labor supply, and savings.

This chapter briefly reviews the role of the demographic transition as a key turning point for economic development. We begin by describing the stylized pattern of the demographic transition and detailing the facts regarding similarities and differences across countries in (p.2) section 1.2. In section 1.3, we discuss the close links between demographic and economic development, highlighting the different mechanisms through which the demographic transition affects economic growth. Section 1.4 illustrates the implications of the nonlinear dynamics of the demographic transition for economic development through the human capital-acquisition channel. Section 1.5 addresses the fundamental determinants of the transition, and section 1.6 provides an overview of current implications and gives an outlook of likely implications for future development. At the end, we briefly overview the structure of the remaining chapters and describe how they integrate into the perspective laid out in this chapter.

1.2 The Patterns of the Demographic Transition

The classical perception of population dynamics goes back to Malthus (1798), who argued that the tendency of a population to grow generally exceeded the possibilities for sustaining the population in terms of food. Consequently, if a population is to stay approximately constant, factors are needed to counterbalance this tendency for population growth. These factors are positive checks in terms of mortality due to food scarcity, disease, and war as well as preventive checks in terms of birth control. The Malthusian description appears to appropriately describe not only human population dynamics but those of other species as well. An important implication of Malthusian dynamics is that improvements in income per capita, for instance after good harvests or due to improvements in technology, have only temporary effects on standards of living because they lead to higher population growth and density (see, e.g., Ashraf and Galor 2011).

The first to notice and describe cross-country differences in fertility and mortality dynamics was Thompson (1929), who classified countries into three groups. According to him, in 1929, “group A” countries, Western Europe (west of a line from Trieste to Danzig and north of Italy and Spain), exhibited falling birth and death rates. In addition, in these countries, fertility fell faster than mortality, thus leading to a decline in natural population growth rates. “Group B” countries, including Italy, Spain, and Central Europe, also displayed falling birth and death rates. However, in these countries, death rates declined more rapidly than birth rates, thus leading to stable and even increasing natural population growth rates. Finally, “group C” countries, which for Thompson (p.3) constituted the rest of the world (in particular, Russia, Japan, India, Asia, Africa, and South America), still exhibited high, “uncontrolled” birth and death rates. According to Thompson, these countries also likely exhibited considerable population growth, depending on the relative differences between mortality and fertility. However, beyond this description, Thompson did not elaborate on what he believed were the reasons for the declines in fertility and mortality.

In a contribution that appeared roughly during the same time, Landry (1934) described similar groups of countries and their different population dynamics. In contrast to Thompson, he delved into the underlying reasons for the dynamics in fertility and mortality (see also Kirk 1996). According to Landry, the reasons for the mortality decline obviously included “progress in medicine and hygiene,” which was reflected in improved health technologies relating to the diagnosis and treatment of disease, availability of vaccinations, and reduced number of famines. The reasons for the decline in fertility were less obvious to Landry, and he attributed this decline to “birth control” (see Landry [1933] 1987). However, neither Thompson nor Landry had clear predictions about the long-run equilibrium of demographic dynamics nor insights regarding the broader implications of these dynamics for economic development.

The first account of what is now considered demographic transition theory in demography is by Notestein (1945). Based on his earlier work on population projections (Notestein et al. 1944), he predicted a similar, general pattern to occur in all countries, with an initial decline in mortality, a delayed decline in fertility, and a temporary peak in natural population growth. The generality and relevance of these predictions was confirmed by the results of the European Fertility Project, which collected data from different European regions and described striking similarities in fertility dynamics (see, e.g., Coale and Cotts-Watkins 1986).

The stylized pattern of the demographic transition as perceived by demographers today (see, e.g., Chesnais 1992; Reher 2004) is illustrated in figure 1.1. The development starts from a premodern regime with high birth and death rates and moderate population growth. At some point, mortality (reflected by the crude death rate) begins a continued decline. With some delay, birth rates also decline, ultimately faster than death rates. Consequently, natural population growth, which is initially moderate, exhibits a temporary increase and eventually peaks before returning to moderate levels. (p.4)

The Demographic Transition and Long-Term Development

Figure 1.1 The stylized demographic transition.

The precise pattern of the dynamics of mortality at different ages and of fertility are the subject of a voluminous literature in historical demography. Recent overviews include Lee (2003) and Guinnane (2011). It is generally accepted that the demographic transition initially occurred in northwestern Europe with a decline in mortality due to infectious diseases. Improvements in health technology, including the development of vaccines during the nineteenth century, further reduced mortality. The early declines in mortality affected different ages at different points in time, but it seems that adult longevity had begun to increase, at least for some strata of the population, even before the onset of the widespread demographic transition (see, e.g., de la Croix and Licandro 2015). The decline in fertility was the result of an intricate interplay of marital patterns, in particular the timing of marriage, and fertility planning, all of which appear to have been influenced by economic factors such as female labor force participation. Historical demographers sometimes distinguish between a first fertility transition, which happened in Europe during the late nineteenth century, and a second fertility transition, which witnessed the decline of fertility below replacement levels after the post-World War II baby boom and the fall of the Iron Curtain (see, e.g., Kohler, Billari, and Ortega 2002).

The decline in mortality reduced the opportunity costs for time spent in education, thereby increasing the incentives for time-consuming investments in skills. The decline in fertility, conversely, implied that more resources were available for the upbringing of a child. Finally, (p.5) economic development presumably led to an increased demand for skilled labor. Taken together, these processes implied an increase in educational acquisition resulting from the demographic dynamics. Ultimately, this relationship provides a close link between demographic and economic development, as already noted by Notestein, who writes that “In a period of rapidly developing technology new skills were needed and new opportunities for individual advancement arose. Education and a rational point of view became increasingly important. As a consequence, the cost of child-rearing grew and the possibilities for economic contributions by children declined. Falling death rates at once increased the size of the family to be supported and lowered the inducements to have many births. Women, moreover, found new independence from household obligations and new economic roles less compatible with childbearing.” (Notestein [1953] 1977, 142). In the following, we provide a brief and (necessarily) incomplete review of the literature related to this nexus.

1.3 The Demographic and Economic Transition: A Unified Growth Perspective

The quest to better understand the mechanisms behind these stylized facts has led to an increasing research effort in the economics literature during the past two decades. Much of this literature focuses on the long-run dynamics of demographic and economic variables. Early studies considered partial equilibrium frameworks and restricted attention to the development of the economy along a balanced growth path while modeling the interactions between fertility and individual investment choices (most notably related to the formation of human capital), which affected economic outcomes. Later studies developed general equilibrium models with nonlinear dynamics and incorporated the role of mortality dynamics.

1.3.1 The Fertility Transition

One of the stylized facts of long-run development is the reversal of the relationship between fertility and income along the developmental process. During the Malthusian regime, this relationship was positive, while it turned negative in the modern growth regime. A realistic model of fertility behavior is required to understand the reasons for this reversal, which is why the theoretical investigations initially focused attention on the patterns of the fertility transition.

(p.6) Guinnane (2011) summarizes the various mechanisms behind the secular decline in fertility discussed in the literature and discusses their empirical relevance. Among those mechanisms is the reaction to exogenous mortality declines, which allowed individuals to reduce their fertility; the development and increased use of contraceptive methods; an increase in the direct and indirect (opportunity) childbearing costs; an increase in returns to education; and the widespread implementation of social insurance and old-age support, which made children redundant as the primary caretakers of their parents. Of those, Guinnane deems the interplay between increases in child-rearing costs and increases in the return to education as the most realistic causes of the decline in secular fertility, but he does attribute relevance to the other mechanisms.

A key observation in this context is indeed the pronounced increase in educational attainment and the negative correlation between fertility and human capital attainment—fertility in modern societies is lower than in Malthusian societies, although individuals are more skilled in modern societies. In human capital driven growth models, the acquisition of skills and formal education is the key determinant of economic development. These observations motivated the development of models that link the number of children in a family to the their educational attainment. This link emerges naturally as a consequence of limited resources. If education as well as raising a child is costly, a trade-off is induced between having many children and providing these children with education—the so-called quantity-quality trade-off. Clark (2007) provides evidence for the existence of the trade-off and its role throughout the world during the Malthusian period. Early theoretical investigations of this link include Schultz (1974), Becker (1981), Easterlin and Crimmins (1985), and Barro and Becker (1989). While these early models of fertility provide rationales for the stylized correlation between education and fertility, they encounter difficulties in explaining the changing patterns of fertility during the different phases of the demographic transition and, in particular, the reversal in the relationship between fertility and income. Higher income relaxes the budget constraint and thus allows for more children and more education.

The so-called unified growth theories, which account for the endogenous transition from economic (and demographic) stagnation and underdevelopment to sustained growth, typically focus on one of the various mechanisms described by Guinnane (2011) in isolation. In this literature, the fertility transition and the change from quantity to quality (p.7) investment in children is considered a central mechanism behind the dynamics of long-run economic development, particularly for the transition from stagnation to growth. However, the quantity-quality perspective has been refined to generate a reversal in the relation between income and fertility. The seminal work in the literature on the transition from stagnation to growth is the model by Galor and Weil (2000). They focused attention on the interdependencies of the quantity-quality trade-off and technological progress, which ultimately led to an increase in the returns to education and a reduction in fertility. As economies develop and technology advances, the demand for human capital increases, thereby tilting the trade-off toward higher-quality investments in children and reducing the number of children. Once parents begin to invest in the quality of their offspring, the positive relationship between income and fertility, which lies at the heart of the Malthusian mechanism, reverses as further development induces more demand for human capital and thus more human capital investment. The flip side of this increased demand is lower fertility. On the aggregate level, more human capital in the economy leads to an acceleration of economic development. Further increases in income are thus associated with higher education expenditures and, crucially, reduced fertility. Limiting fertility eventually constitutes an optimal strategy that allows parents to provide more resources to the education of each child in an environment in which the demand for education is steadily increasing, (see also Galor 2005; Galor 2011). Taken together, these elements generate the reversal in the income-fertility nexus from negative to positive resulting from an endogenous change in the dynamical system. The emergence and development of unified growth theories and the open questions are discussed in detail by Oded Galor in section 2.2 of this volume.

These developments eventually brought population growth to (and even below) reproduction levels in developed countries. Part of this development is related to unprecedented changes in family structure and the propensity to have children (see Doepke and Tertilt 2016). An important cofactor in these changes is the increased role of women in the labor market and female empowerment. Gender wage gaps and productivity gaps changed during the process of economic development, with consequences for fertility, education incentives, and capital accumulation (see, e.g., Galor and Weil 1996; Lagerlöf 2003b). Likewise, female empowerment might increase incentives for education and reduce fertility (see, e.g., de la Croix and Vander Donckt 2010). Recent (p.8) theories of fertility explicitly distinguish between the extensive and intensive margins of fertility and account for the role of changing marriage patterns after the onset of the demographic transition (see, e.g., Baudin, de la Croix, and Gobbi 2015). After discussing some recent contributions in this literature, chapter 7, by Matthias Doepke and Fabian Kindermann, goes beyond fertility theories based on representative parents and explores the implications of modeling fertility choices as outcomes of intrahousehold conflict and bargaining.

1.3.2 The Mortality Transition

For a long time, the economic literature on the demographic transition has focused on the fertility transition and the changing relationship between income and fertility during the different phases of economic development. Less emphasis was initially devoted to the transition in mortality, although this transition represents a powerful force for population dynamics and constitutes an important change in individual incentives for any sort of long-run investments.

The mortality transition—the sustained decline of mortality at all ages—in fact preceded the fertility transition, as indicated by the drop in the crude death rate in figure 1.1. In Europe, the decline in mortality and its effect on population dynamics were documented during the early phases of the demographic transition during the early nineteenth century and even before (see, e.g., Boucekkine, de la Croix, and Licandro 2003). Lower mortality rates have been related to improved nutrition resulting from higher agricultural productivity and to improved hygiene, which reduced susceptibility to infections. In addition, the decline in mortality was more pronounced for the more educated and wealthy parts of the population, (see de la Croix and Licandro 2015). Medical discoveries subsequently reduced infant mortality as well as the mortality of adults from infectious diseases. The advent of antibiotics marked another pronounced reduction in mortality in the context of the epidemiological transition after 1945 (see Notestein 1977 and Kirk 1996).

From a long-run perspective, economic living conditions, in terms of income per capita, and health, in terms of life expectancy, display a positive and concave correlation, as illustrated by the famous Preston curve (Preston 1975). While the patterns described by Preston appear to still be relevant (Leon 2007), the mechanisms behind this relation are the object of a vivid debate that was sparked by Preston’s article and that is still influential, as witnessed by a special issue in the (p.9) International Journal of Epidemiology in 2007. At the time of Preston’s original publication, a causal relationship was perceived between increasing living standards and declines in mortality, with McKeown (1976) being the dominant proponent (see also Mackenbach 2007). Preston believed that advances in medical care and public health, rather than economic development, were the dominant drivers behind the decline in mortality, although later he acknowledged a possible influence of living standards (Preston 2007). However, the reverse causality from mortality declines to improvements in economic living conditions has also been advocated (Bloom and Canning 2007).

In chapter 3, David Weil discusses the historical evidence regarding mortality dynamics across countries and investigates the causal relationship between life expectancy and income that lies behind the correlation representing the Preston curve. While causality is likely to run both ways, the effect of life expectancy on income and income dynamics plays a key role for long-run development because a reduction in mortality rates and a corresponding increase in longevity affect the incentives to acquire human capital and invest in formal education. The crucial role that length of (work) life plays in decisions regarding time spent in education and training in terms of the amortization period of education investments has been emphasized since the seminal work by Mincer (1958), Becker ([1965]1993), and Ben-Porath (1967). This view is reflected in later work on mortality as a determinant for long-run development (see, e.g., de la Croix and Licandro 1999; Kalemli-Ozcan, Ryder, and Weil 2000; Boucekkine, de la Croix, and Licandro 2003; Lagerlöf 2003a). Cervellati and Sunde (2005) model the interactions between longevity, education, and technological improvements from the perspective of a unified growth theory. Their results show that the dynamic feedback effects between economic and demographic variables can produce nonlinear developmental trajectories that are in line with the historical patterns. In particular, their findings show that longevity is a key factor behind the long phase of quasi-stagnant development, characterized by low incomes, low life expectancy, and little education, as well as behind the endogenous transition to sustained growth. Similarly, in chapter 5, Davide Fiaschi and Tamara Fioroni explore the role of increased adult longevity and technological progress in the transition from Malthusian equilibrium to modern growth.

More recently, the literature has incorporated demographic dynamics in terms of both mortality and fertility in models of long-run development (see, e.g., Kalemli-Ozcan 2002; Soares 2005; (p.10) Lee and Mason 2010). An aspect that has received considerable attention in this context is the role mortality played in the decline in net fertility and population growth (see, e.g., Kalemli-Ozcan 2003; Doepke 2005). De la Croix and Licandro (2013) propose a model of the demographic transition in terms of reductions in both mortality and fertility based on a trade-off between fertility, education, and investments in child health. This model can reproduce the patterns of the demographic transition in terms of improvements in physical development of children, permanent increases in life expectancy, an inverse U-shaped pattern of fertility and population growth, and increases in human capital attainments. Cervellati and Sunde (2015a) develop a theory of the economic and demographic transitions based on an occupational choice framework with heterogenous skills and differential fertility. This model is suitable for quantitative analysis and can replicate the time-series patterns of the demographic transition in terms of mortality and fertility for countries such as Sweden and England. In addition, this framework can be used to explore the implications for comparative development from a cross-country panel perspective, as discussed in more detail in the following section.

1.4 Demographic Change and the Acquisition of Human Capital

In the theoretical literature discussed previously, the acquisition of human capital has been considered the main link between the demographic transition and economic development. In spite of a substantial body of research, the role of demographic variables for, and their interaction with, the process of human capital accumulation are still not fully understood.

Theoretical investigations typically postulate the existence of a tradeoff between the quantity of children and their quality (often interpreted as investments in the education of children) as discussed earlier. However, providing credible evidence for the empirical relevance of the assumption of a quantity-quality trade-off has proved to be rather difficult. Early evidence for the existence of a negative correlation between the number of siblings and their school achievements in contemporaneous data was presented by Hanushek (1992). Other studies find no evidence for a quantity-quality trade-off in developed countries (see, e.g., Angrist, Lavy, and Schlosser 2010). In a series of papers, Becker, Cinnirella, and Woessmann (2010, 2012, 2013) find evidence of (p.11) a negative relationship between fertility and the education of mothers and children in nineteenth-century Prussia, which is consistent with a quantity-quality trade-off before the demographic transition. Similar evidence for pretransitional populations is offered by Gillespie, Russell, and Lummaa (2008) for Finland, by Klemp and Weisdorf (2012) for England, and by Galor and Klemp (2013) for Quebec. Recent work by Vogl (2015) investigates the dynamics of cross-sectional fertility patterns and investment in child education during the demographic transition and even finds a reversal in the relationship between family size and the transmission of education.

In chapter 8, Francesco Cinnirella and Erik Hornung provide additional insights by investigating the change in marriage patterns in nineteenth-century Prussia and its implications for the reduction in fertility and the emergence of widespread education. In particular, their analysis explores the relationship between the importance of land (and land ownership concentration) for marriage patterns, fertility, and education. The plausibility of a quantity-quality trade-off is revisited from a novel perspective by Carl-Johan Dalgaard and Holger Strulik in chapter 6. Their contribution moves the focus away from the role of health in terms of living conditions and survival probability toward child quality in terms of physiological development, which can be measured by body height. Their chapter discusses a recent body of theoretical and empirical research that investigates the role of human physiological development in preindustrial and industrial times as a further channel that links economic and demographic development.

The role of mortality reductions in the incentives to acquire human capital is a central link between the demographic transition and long-run economic development. Declining mortality rates change the relative costs and benefits of acquiring additional education in various ways. Typically, education investments are undertaken early in life, whereas the benefits in terms of increased productivity and incomes accrue later. According to this investment logic, which has been formalized in various ways, individuals face the choice between working (and earning an income) and spending time in obtaining education (and foregoing income) to benefit from higher productivity and thus higher incomes later in life. In this context, a lower mortality implies a longer amortization period for the time invested in education and thus greater incentives to acquire education. The decline in mortality did not always affect all individuals the same, however. Initially, the decline in mortality rates mainly affected children and prime-aged adults, and only later (p.12) did it affect individuals of older age. The maximum length of life was little affected until only recently (see Wilmoth and Horiuchi 1999; Strulik and Vollmer 2013). This sustained rectangularization of the survival probability distribution had important implications for the incentives to acquire education across different cohorts. Regarding the recent debate about the causal role of increased longevity for schooling attainment, Cervellati and Sunde (2013) provide a theoretical and empirical investigation of the role of differential changes in age-specific survival rates. Their findings suggest that the reduction in mortality in prime working ages (rather than longevity in terms of expected life span) is key for the incentives to invest in formal schooling. In chapter 4, David de la Croix reviews this debate and provides a summary of channels through which increases in adult longevity affect economic growth, focusing on the contact time and incentive effects.

Recent evidence based on individual-level data also suggests a causal effect of mortality reductions on fertility and on the incentives to acquire human capital. For instance, Soares (2006) finds evidence that greater longevity is systematically associated with higher educational outcomes and lower fertility in Brazilian villages. Bleakley (2007) presents evidence that educational attainment increased as consequence of the hookworm eradication in the southern United States, and Bleakley and Lange (2009) present evidence that this increase was accompanied by a fertility decline. Jayachandran and Lleras-Muney (2009) find evidence that the reduction in maternal mortality in Sri Lanka between 1946 and 1953 led to a significant increase in life expectancy among school-aged girls and a subsequent increase in literacy and school attendance, while Dorsey, Oster, and Shoulson (2013) show that life expectancy affects education levels among individuals at risk for Huntington disease. The advantage of these microeconometric investigations is their internal consistency, even though the external validity of the quantitative findings is sometimes difficult to evaluate.

The macroeconomic evidence regarding whether, and how, mortality reductions affect schooling attainment has provided a less-coherent picture. For instance, work by Lorentzen, McMillan, and Wacziarg (2008) applies an identification strategy that uses country-specific characteristics to isolate the effect of reductions in mortality on education and growth in a linear regression framework applied to cross-country panel data. Their findings suggest that changes in fertility are important mediating factors in the effect of mortality reductions on human capital. Cervellati and Sunde (2015b) exploit within-country variation overtime (p.13) and find a causal link between reductions in mortality and educational attainment. In addition, however, they find that the effect is not linear and varies during the different phases of the demographic transition. In particular, consistent with the theoretical considerations discussed previously, mortality reductions increase schooling only after the onset of the fertility transition. However, given the difficulties associated with finding appropriate instruments for measuring mortality changes at the country level, the empirical literature is not fully conclusive about the actual mechanisms linking mortality, fertility, and education at the macroeconomic level.

1.5 Onset of the Transition

The mechanisms behind the economic and demographic transition, which first took place in Europe in the nineteenth century, are the object of ongoing research efforts. Nevertheless, existing research has already produced considerable and increasingly consistent theoretical and empirical insights into the various mechanisms at work. Based on this knowledge, the literature has moved toward investigating the historical roots of the economic and demographic transitions and the reasons for the observed heterogeneity in the timing of the transition’s onset across countries and regions.

This research agenda is facilitated by the increasing availability of historical data that enables the application of refined econometric techniques to address questions that are relevant to a better understanding of the economic and demographic transitions and of the patterns of long-term development. While these questions have been addressed mostly by detailed descriptions of the stylized facts and by case studies, a rapidly growing literature investigates the interactions between geographic, historical, and cultural factors as one component, and the economic and demographic transitions as a separate component, using disaggregated data and refined econometric techniques.

Several chapters in this book contribute, in different dimensions, to this growing body of research. One strand of this literature that is particularly relevant to understanding the determinants and consequences of the economic and demographic transitions includes recent investigations into the role of preindustrial bioclimatological conditions and of shocks in these conditions that influenced development in medieval Europe and other regions of the world. This research has documented (p.14) that fertility and mortality levels started declining in Europe much before the industrial revolution. The emergence of human capital-friendly institutions and policies since the sixteenth century also appears to have contributed to a favorable environment for economic and demographic development. More detailed knowledge about these historical patterns is interesting per se, but it gains particular importance when considering why the transition first occurred in this region of the world.

Voigtlaender and Voth (2013a) relate the changes in European marriage patterns, which involved a comparatively high age of first marriage and low fertility, to the increasing participation of women in productive activities outside the house, particularly pastoralism. This change resulted from the labor supply shortage created by the unprecedented population reduction following the Black death in the fourteenth century. The plague shock also triggered complementary mechanisms related to greater mortality pressure resulting from urbanization and wars that helped to counteract Malthusian population dynamics and thereby fostered income growth, as illustrated by Voigtlaender and Voth (2013b). Complementing this change, de la Croix and Licandro (2015) document using individual demographic information for a large database of famous people. Their data shows that, at least for the elites, life expectancy displayed sizable increases in Europe much before the industrial revolution, even as early as the sixteenth and seventeenth centuries.

Increases in longevity can impact the formation of human capital by favoring the transmission of knowledge through longer contact times between individuals in different age cohorts. This channel, which has been studied by Bar and Leukhina (2010) and Doepke, de la Croix, and Mokyr (2015), could have been particularly relevant in the preindustrial period, during which human capital was acquired in the form of apprenticeships, while the role of formal education in the transmission of knowledge was limited. In chapter 4, David de la Croix provides a detailed theoretical and empirical discussion of these issues. Additionally, chapter 8, by Francesco Cinnirella and Erik Hornung, provides evidence for a previously unexplored channel that links inequality to the incentives for human capital acquisition.

The growing evidence for the relevance of preindustrial policies naturally questions the endogenous emergence of the institutions and the environmental conditions that favored their implementation. As discussed in chapter 2 by Oded Galor, the literature recently moved to exploring the determinants of the economic and demographic transitions, (p.15) and hence of comparative developmental patterns, in the very long run. Examples of these newly explored factors are the persistent effects of historical events such as the spread of humans across the globe and the differential timing of the Neolithic transition in different regions of the world. Ashraf and Galor (2013) show that genetic diversity as determined by the prehistoric exodus of Homo sapiens out of Africa has a persistent hump-shaped effect on comparative development. Similarly, the emergence of cultures and social organizations was affected by the adoption of agriculture and the emergence of stable settlements. Another aspect in this context is geographical variation in agricultural suitability, which shaped the incentives for long-term investment, delayed consumption, and might have generated variability in the long-term orientation across societies, as suggested by the evidence of Galor and Ozak (2016).

In chapter 10, Nils-Petter Lagerlöf provides a theoretical investigation into the determinants for the gradual emergence and rise of state-like organizations in Malthusian (pretransitional) environments. According to Lagerlöf, the timing of agricultural adoption and the growth rate of agricultural productivity crucially affect population density and the demand for organizational hierarchies. This development, in turn, had implications for the emergence of political hierarchies, of states and of state size in prehistorical and historical times. These organizations are likely to have affected demographic development in the long run.

A related literature explores the implications of the emergence of human capital-friendly institutions and norms. For instance, Alesina, Giuliano, and Nunn (2013) relate the differential adoption of the plough across different regions of the world to female labor force participation, which has been documented as an important determinant of fertility levels. Regarding education, policies implemented at the local level have been observed as early as the sixteenth century and sowed the seeds of investment in formal education by the hitherto illiterate masses during the nineteenth century. This shift is documented in the evidence from Prussia by Becker and Woessmann (2009) and Becker, Cinnirella, and Woessmann (2010) that suggests the transition to Protestantism played an important role in increasing education and reducing fertility. Similarly, Dittmar and Meisenzahl (2015) highlight the importance of educational outcomes of health and education laws introduced at the municipal level in some Protestant areas.

Taking one step back, Cervellati, Jansen, and Sunde (2015) and Cervellati and Sunde (2017) present theoretical considerations (p.16) regarding the role of changes in the demographic and economic environments in the endogenous evolution of social arrangements and religious norms. The models suggest that a relative increase in the returns to individual investments (in terms of entrepreneurial activities, education, and trade) might have raised the incentives for the adoption of religious norms that supported hard work and education. Cervellati and Sunde (2017) explore the empirical relevance of their theoretical predictions with data for Prussia during the Protestant reformation and find that cities that faced greater variation in climatic conditions and lower returns to trade were less likely to adopt Protestantism.

In chapter 9, Boris Gershman discusses various aspects of culture such as mechanisms of transmission and the persistence of attributes and attitudes that might play a relevant role in the process of long-term development. His chapter focuses on the fear of envy, which is documented to have a potentially detrimental affect on development, especially in African societies. Thus, patterns of demographic and economic development that involve considerable inequality might interact with the evolution of cultural norms.

Finally, in chapter 11, Elena Esposito investigates the demographic determinants for the organization of early human societies and their compatibility with technological sophistication. In particular, she explores and documents the role of particular pathogens and life expectancy in general in the adoption of different organizational forms, such as the caste system.

1.6 Implications for Long-Term Economic Development

The discussion so far emphasizes the role of the demographic transition as a critical turning point for economic development. Several mechanisms link demographic dynamics in terms of fertility and mortality with the mechanisms behind the economic transition, particularly the formation of human capital. This close link between the demographic transition and economic development has several important implications for the patterns of development throughout the world. The following discussion addresses some of the broader implications of these issues for long-term development from a global perspective.

Lessons for Comparative Development.

The intertwined transitions in the different dimensions described so far imply the presence of nonlinear developmental dynamics. These nonlinear dynamics of the (p.17) demographic transition have important consequences for the pattern of economic development. The asynchronous processes of mortality and fertility dynamics during the different phases of the demographic transition imply nonmonotonic changes in population growth rates. Natural population growth increases during the early phases of the demographic transition and eventually slows down as a consequence of falling fertility. These nonlinearities in population growth have important implications for the empirical investigations of long-run comparative development, which have been neglected for a long time. In particular, the inverse U-shaped pattern in population growth implies, ceteris paribus, a U-shaped pattern in income per capita, even if aggregate income follows a monotonic developmental path. Consequently, reductions in mortality can negatively effect income growth per capita, since they are associated with an increase in population growth during the early phases of the transition. During the late phases, however, reductions in mortality are associated with even greater reductions in fertility, leading to a decline in population growth. Cervellati and Sunde (2011a, 2011b) provide evidence for this nonmonotonic effect of improvements in life expectancy on economic growth and document that the effect crucially depends on whether a country experiences the improvement in life expectancy before or after the onset of the fertility transition. Their analysis also documents that an increase in life expectancy is a relevant trigger of the fertility transition itself. After the fertility transition, higher life expectancy is associated with lower population growth rates and greater incentives for the acquisition of human capital. Cervellati and Sunde (2015b) investigate the channels underlying these nonmonotonic effects, namely population dynamics, education incentives, female labor force participation, and old-age dependency ratios. Consistent with the conjecture, they find that prior to the onset of the fertility transition, an increase in life expectancy primarily led to population growth but not to an increase in education, whereas after the onset of the fertility transition, the effect on education is significantly positive and dominates the effect on population dynamics.

An important message from these findings for future work is that neglecting the nonlinearities in demographic development dynamics can result in estimates that are highly sensitive to the composition of the sample, in terms of both cross-sectional units of observation and the phase of demographic development. Empirical work that neglects this aspect can thus deliver potentially misleading results. This discussion also highlights the importance of a timely response of fertility (p.18) to mortality reductions, which has relevant policy implications for the implementation of low fertility and proschooling public interventions, especially in high-mortality countries. Moreover, the demographic transition is associated with profound changes in the age distribution. As mortality decreases, individuals have a greater chance to survive to older ages, while the reduction in fertility reduces the share of children in the population. Consequently, the fraction of the population in its prime working age increases, at least temporarily, while education incentives also increase. This surge leads to transitory demographic effects that are particularly favorable for economic development, with low dependency ratios, a relatively large fraction of the population in the workforce, and increased education. However, this “demographic dividend” fades out once the sustained mortality transition triggers population aging and increasing old-age dependency ratios (see Bloom, Canning, and Sevilla 2003).

The Role of the Timing of the Transition.

The second implication is the timing of the onset of the transition, which varies substantially across countries. One way to describe global development is that the poorest countries today have yet not undergone the transition that took place in the European forerunner countries two centuries ago. While the literature suggests that virtuous demographic and economics dynamics were at work long before the transition in Europe, the reasons for the substantial developmental delays in other parts of the world are not clear and hence nor are the ultimate determinants of this transition.

A combined view of demographic and economic development sheds light on the crucial role of the timing of the demographic transition. The onset and duration of the transition varies substantially across different regions of the world, but little is known about the underlying determinants and mechanisms that lead to this variation. Understanding the timing of the demographic transition, however, is of primary importance to explaining comparative development. While the European countries and the Western offshoots experienced the demographic transition as early as the mid-nineteenth century, numerous countries are still pretransitional and underdeveloped today (see, e.g., Strulik and Vollmer 2015). The recent evidence discussed previously documents the existence of peculiar demographic conditions in terms of low fertility and mortality and the emergence of human capital-friendly institutions that favor the onset of the economic and demographic transitions. Relatively little research has been devoted, however, to investigating the (p.19) determinants of the differential timing of the onset of the demographic transition across countries. Cervellati and Sunde (2015a) show that patterns of long-term demographic and economic development look very similar across different countries, which nevertheless differ substantially in terms of when the transition began. Their results suggest that a better understanding of the reasons for the delays in the onsets is key to understanding the underlying reasons for the differences in comparative development. Using extrinsic mortality differences as a proxy for country-specific differences and as a potential determinant of the delay in the onset, their results demonstrate the explanatory power of the transitions view for comparative development. Performing counterfactual exercises and abstracting from cross-country spillovers, the analysis delivers the striking conclusion that even moderate differences in life expectancy at birth before the transition can materialize in a substantial delay of several generations in the onset of the demographic transition across different regions of the world.

An important omitted dimension in this context is an explicit treatment of institutions. Ample empirical evidence suggests a bidirectional interaction between demographic development and institutions. For instance, the beginning of the demographic transition in Europe fostered the demand for health care and social insurance, the implementation of which in turn accelerated the transition and thereby affected economic development (see, e.g., Strittmatter and Sunde 2013). However, the interplay between the demographic transition and institutional change in terms of democratization is largely unexplored. Recent work by Cervellati, Meyerheim, and Sunde (2017) suggests that institutions might play an important role in the timing of the onset and duration of the demographic transition, while the demographic transition itself might be an important turning point in the process of institutional development.

Implications for Future Growth.

Finally, the consequences of the demographic transition—if and when it takes place all over the world—on global development are largely unexplored. However, a better understanding of the interactions between demographic and economic development from a global perspective appears necessary to addressing the future growth prospects in both developing and developed countries. In fact, since the first episodes of economic and demographic transition, the world has witnessed fast economic growth, and economic development has traveled from Europe to across the globe. More recently, growth rates have stabilized and even fallen in parts of the (p.20) world, and at least since the famous Club of Rome study in 1972, whether growth will eventually come to an end has been discussed. The Great Recession in the aftermath of the global financial crisis of 2007 and 2008 has revived this discussion and raised the question of whether the recession was the onset of “secular stagnation” in the developed world, or whether the decline in growth rates has more structural reasons, as argued by, Gordon (2016).

When considering the demographic transition as the central mechanism behind the transition from stagnation to growth, one might argue that high growth rates in the past have been at least partly the consequence of singular, nonrecurrent changes in mortality and fertility, coupled with dramatic demographic change in terms of population dynamics, educational attainment, and labor force participation, which occurred first in the European forerunner countries and later on in the follower countries around the world. Cervellati, Sunde, and Zimmermann (2017) provide a first exploration of the possible validity of this view and its implications. In particular, experiencing the demographic transition is a one-off event in the developmental path of each country, which takes effect after several generations but eventually abates. From this perspective, one might indeed expect growth to slow down, first in the European forerunner countries and later in the followers. Other mechanisms might interfere with this development, however, which complicates the analysis. For instance, the forerunner countries appear to have balanced their demography-related slowdown by exploiting their developmental advantage and expanding their markets through globalization. Consequently, they managed to continuously grow at high rates, effectively borrowing demographic development potential from the less-developed countries. Ultimately, however, as globalization reaches even the most remote parts of the world and latecomer countries undergo the demographic transition, the transitional sources of growth might be expected to lose momentum at the global level.

Because many forecasts disregard the inherent nonlinearity of dynamic processes such as demographic transition, such a long-term view can help shed new light on the question of secular stagnation, which has been addressed mainly as a problem of delayed cyclical recovery. Another aspect relevant to this dimension is whether indeed all countries will undergo the demographic transition. In particular, regarding many African countries, some researchers have expressed concern that the demographic transition might have stalled for several reasons (see, e.g., Bongaarts 2006). Similarly, it is conceivable that technological and medical advancements in developed countries will create (positive or (p.21) negative) spillovers on latecomer countries. These spillovers will interfere with the evolution of their (otherwise autarkic) demographic conditions and population dynamics, with long-term impacts that are difficult to predict.

Taken together, these speculative considerations suggest that a great deal can still be learned from the investigation of the economic and demographic transitions in the global perspective. So far, social scientists lack theoretical and empirical frameworks that allow them to address these questions systematically. Hence, understanding the role of the demographic transition across countries and time remains a fascinating area of research. In this sense, the call for further work in this direction by one of the founding fathers of demographic transition theory, Adolphe Landry, almost a century ago appears relevant still today:

And yet the demographic revolution is not over. In which case, we cannot follow it too closely: there is nothing more deserving of observation and study

(Landry [1933] 1987, 740).

1.7 Structure of This Book

The purpose of this chapter is to briefly overview the patterns of the demographic transition and its implications for long-term development. It focuses mainly on the channels through which demographic and economic development interact and the role the demographic transition and its timing play in better understanding comparative development and developmental prospects. This chapter establishes the framework for the remaining chapters of this volume, which provide more detailed insights into the various aspects of demographic and economic development addressed in this chapter.

Chapter 2, by Oded Galor, examines the biogeographical origins of the differences in economic development across the world. This chapter takes a very long–run perspective and discusses the role of prehistorical conditions—variation in the timing of the Neolithic transition from hunter-gatherer societies to sedentary agriculture and variation in genetic diversity—in contemporaneous patterns of comparative development. At the heart of this analysis is the perception that the factors governing the developmental process and thus the demographic and economic transition might have persistent effects even today.

The following three chapters focus on the role of health and longevity. Chapter 3, by David Weil, surveys the stylized facts regarding the strong nexus between economic development and health, as (p.22) reflected by the famous Preston curve. By providing a decomposition of the reasons for recent increases in life expectancy, in terms of increased income (shifts along the Preston curve) and shifts of the Preston Curve, Weil questions whether third factors, such as institutions, are largely omitted factors in this context. Chapter 4, by David de la Croix, contemplates whether improvements in longevity were responsible for the economic transition. He provides insights into the dynamics and measurement of longevity and presents different mechanisms through which longer lives affect development. These include the contact time available for the young for learning from the elderly and an incentive effect in terms of longer amortization periods for educational investments. Chapter 5, by Davide Fiaschi and Tamara Fioroni, investigates the relationship between adult longevity and long-run development. Based on a collection of stylized facts regarding life expectancy and income, the authors develop a stylized unified growth framework. Simulations of this model suggest that additional dynamics, such as technological progress and improved health conditions, are needed to replicate the empirical patterns.

After covering aspects of demographic development related to mortality, the following three chapters are devoted to fertility and education. Chapter 6, by Carl-Johan Dalgaard and Holger Strulik, digs deeper into the microeconomics of the income-health nexus and incorporates fertility decisions. The authors explore the trade-off between the number of offspring and the health investments in those offspring, as reflected by body size, thereby providing a new interpretation of the quantity-quality trade-off in a health context. Based on a collection of facts supporting this number-size trade-off, the chapter shows how a unified growth framework can be enriched by incorporating this aspect. Chapter 7, by Matthias Doepke and Fabian Kindermann, argues for a reformulation of fertility theories that are embedded in more realistic theories of household formation and joint decision making within the household. The authors discuss the additional insights obtained from such an approach as well as the additional complications, including the need for an explicit treatment of non unitary decision making based on intra household bargaining and issues of time consistency. Chapter 8, by Francesco Cinnirella and Erik Hornung, provides an account of how institutional factors affect marriage, fertility, and education decisions. After summarizing the theoretical arguments for this link, Cinnirella and Hornung briefly overview the literature and then present novel evidence from nineteenth-century Prussia. Their results reveal (p.23) that higher landownership concentration was associated with lower enrollment rates as well as a negative relationship between marriage and enrolment rates, which suggests that political and economic inequality might be an important cofactor of the demographic and economic transitions.

The last three chapters take a somewhat broader perspective, going beyond the standard components of the demographic transition and exploring the role of cultural and institutional aspects in the timing of the transition. Chapter 9, by Boris Gershman, focuses on the interaction between culture and economic development, with culture encapsulating preferences, values, attitudes, beliefs, and social norms. After documenting that differences in so-defined culture matter for economic outcomes and development, Gershman explores the origins of culture. This discussion provides a natural link to unified growth theory and the role of culture in the transition and emphasizes the ambiguous role of some aspects of culture, such as envy. Chapter 10, by Nils-Petter Lagerlöf, provides a reinterpretation of the positive correlation between the time since the Neolithic transition and per-capita income before the economic and demographic transitions. He shows that in a simple Malthusian model, the differences in development might be amplified by territorial competition between societies or an upper bound on the rate of population growth, suggesting that superstructures, such as empires, and behavioral norms might have played a decisive role during this phase of development. Finally, Chapter 11, by Elena Esposito, tries to shed new light on the effects of social institutions on long-run development. In particular, she explores the impact of caste systems during the early phases of economic and demographic development through how the systems influenced the possibilities for labor specialization. Based on data for precolonial social organization across different ethnicities, she provides novel evidence that supports the hypothesis that caste systems were indeed conducive to specialization and technological sophistication.


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(*) The authors thank Lukas Rosenberger for excellent research assistance.