Health, Development, and the Demographic Transition

This paper provides a unified theory of the economic and demographic transition. The main mechanism is based on optimal decisions about fertility and time investments in hetero-geneous types of human capital. These decisions depend on different dimensions of health, which themselves are endogenously determined in the process of development. By disen-tangling the distinct roles that different dimensions of health, such as adult longevity, child mortality, and overall healthiness, play for education and fertility decisions, the model is able to generate dynamics that can replicate the historical development pattern in the Western world. The model generates an endogenous economic transition from a situation of sluggish growth in incomes and productivity to a modern growth regime. Closely related, a demo-graphic transition from high mortality and high fertility to low mortality and low fertility arises, with an intermediate phase of increasing fertility despite falling mortality rates. The model can generate a positive correlation between income and fertility during early stages of development, as well as a decline net fertility in the last phase of the demographic transition, and it provides a rationale for fertility declines that precede drops in child mortality