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General: Economic Uncertainty & Fertility

Study: Economic Uncertainty and Fertility

The relationship between economic uncertainty and fertility behavior is a critical facet for understanding demographic dynamics and their impact on economic development. This comprehensive study explores how fluctuations in economic certainty, particularly income uncertainty, influence fertility decisions across different nations.

Key Findings

  • Theory of Precautionary Saving: The precautionary saving motive suggests that increased income uncertainty leads to enhanced savings, curtailing consumption and fertility.
  • World Uncertainty Index (WUI): This new measure of economic uncertainty was pivotal in the analysis, offering insights into the economic conditions of 126 countries from 1996 to 2017.
  • Robust Negative Relationship: Empirical findings consistently indicate a robust negative correlation between economic uncertainty and fertility rates, spanning various countries, model specifications, and econometric techniques.
  • Pro-cyclical Nature of Fertility: The study reveals the pro-cyclical behavior of fertility rates, responding to economic cycles and uncertainties.

Methodological Approach

  • The World Uncertainty Index (WUI), created by the IMF, served as the primary measure of economic uncertainty.
  • Data spanned 126 countries over 21 years, ensuring a broad analysis.
  • A mix of fixed-effects estimations, the Generalized System Method of Moments (GMM) technique, and robustness checks were used to validate findings.

Results

  • Significant Findings: High levels of economic uncertainty correlate with lower fertility rates across different country groups and models, even after controlling for other variables.
  • OECD vs. Non-OECD Countries: The impact of uncertainty on fertility is more pronounced in OECD countries compared to non-OECD countries.
  • Human Capital and Fertility: The study also explored the relationship between human capital and fertility, finding that in OECD countries, increased uncertainty not only reduces fertility but also potentially raises human capital per child.

Implications for Policy and Planning

  • This study highlights the need for policymakers to consider the effects of economic uncertainty on demographic trends.
  • Understanding the interplay between economic policies and fertility rates can guide more effective demographic and economic planning.

Bottomline

The study concludes that economic uncertainty, as captured by the World Uncertainty Index, has a significant and negative impact on fertility rates. This underscores the importance of the precautionary saving motive in fertility decisions. Future research avenues include exploring microdata to understand individual responses to uncertainty and examining the effects of specific events like the COVID-19 pandemic on fertility trends.