The demographic transition and neoclassical models of balanced growth

A major concern by scholars in demo-economics is the endogenous explanation of the demographic transition. In this paper, after having reviewed some main results of the recent literature on the subject, we discuss the insight that is provided by Solow-type neo-classical models once they are endowed with “transitional” assumptions. Although Solow’s model is usually considered unable to explain the main facts of the transition (Chu 1998), we believe that it may still offer insight on fundamental aspects of modern growth, once we adequately endow it with hypotheses which are coherent with the demographic transition. As a first step we critically discuss the main avenues through which the typical patterns of the demographic transition may be embedded within the model of Solow, by distinguishing the rational perspective, in which the “transition” follows from a maximising framework, from empirical and diffusionist approaches. The ensuing formulations of the transitional mechanism are embedded in simple neo-classical models, that can be used in order to study the main dynamical consequences of the transition on economic growth. The effects of the transition are subsequently analysed under both constant returns to scale (CRS), and decreasing returns to scale (DRS). DRS, which are typical of developing countries, lead to important differences, compared to CRS, which have not (with the exception of Strulik 1999), so far, been stressed in the literature on growth. Our overview and analyses give insight on important aspects such as: i) the onset of poverty traps, and the historically observed mechanisms of escape; ii) a more flexible notion of convergence which appears a powerful explanatory tool for empirically observed dynamics, iii) the need of DRS as unified models of long term historical growth