DDP 687. Lawrence Khoo and Benjamin Dennis. "Income Inequality, Fertility Choice, and Economic Growth: Theory and Evidence." March 1999. 22 pp.

The growing literature on inequality and economic growth has focused on the adverse effects of income inequality on investment. We focus on the negative relationship between inequality and economic growth, hypothesising that inequality lowers economic growth by raising the fertility rate. Unlike other studies, our analysis does not rely on incomplete markets, or on parental altruism. Instead, it uses the fact that a larger number of children reduces the riskiness of the financial payoff from having children, a factor which is more important for the poor than for the wealthy. Cross country econometric tests using a newly collated dataset of income distribution support the proposition that much of the growth enhancing effects of an equitable income distribution may come from its negative effect on fertility rates.

Keywords: fertility, income inequality, growth

JEL Codes: J13, O15, O40

Lawrence Khoo worked as a project assistant on various HIID projects when he was a doctoral student in the Economics Department at Harvard University. He is currently an assistant professor at the City University of Hong Kong.

Benjamin Dennis began as a project assistant with the EAP project in 1992 and currently serves as a resident advisor on macroeconomics. He is on leave from his position as assistant professor at the University of the Pacific.