SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: An overlapping generations framework is employed in order to study consequences of the old-age security and producer goods motive for having children in a rural economy. The model predicts growth in total output combined with declining fertility and increasing population density and per capita output, if landholdings are initially greater than in stationary state. An increase in agricultural productivity, a decrease in the cost of raising children, and a transfer to adults increase fertility in the short run, while a transfer to the old decrease it. In stationary state, permanent positive productivity shifts cause higher population density but leave per capita consumption unchanged. Permanent reductions in the cost of raising children and permanent increases in transfers to adults reduce per capita consumption and increase population density, while permanent increases in transfers to the old have the opposite effect in the new stationary state.

Keywords: Endogenous fertility; foreign aid; population old age security

JEL-codes: J13; O12; Q12

32 pages, November 1994

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