ECONOMIC DISRUPTION, MALTHUSIAN FERTILITY, AND ECONOMIC GROWTH *

The transition to market-oriented economies in Central and Eastern Europe and the former Soviet Union in the 1990s, like the Great Depression in the 1930s, generated sharp declines in real incomes and fertility rates. This paper presents a general equilibrium growth model with physical and human capital accumulation and endogenous fertility to explain the positive relationship between fertility and income and the implications for long-run economic development. The model predicts that: i) the steeper the decline in labor income, the deeper the fertility reduction; ii) the distribution of income affects growth by its impact on fertility; and iii) the subjective subsistence level of consumption plays an important role in determining the economy’s growth path. Empirical tests on a sample of 22 countries from 1987 to 1998 provide strong support for the prediction that the decline in labor income significantly influences birth rates