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Must Read: “Terra Incognita: The Economics of a Shrinking World.”
Quoted post by Jesús Fernández-Villaverde (@JesusFerna7026) Last week I posted a new paper with Patrick Norrick: “Terra Incognita: The Economics of a Shrinking World.”
We chose the title deliberately. No society in history has experienced the fertility levels now seen in South Korea, China, Thailand, Colombia, Chile, and many other countries. Our knowledge of the causes (and of the economic consequences) remains far more limited than most public discussion acknowledges. Much of what we write is, at best, educated conjecture.
The paper also struggles against a space limit. We wrote 20,000 words, far from the 250,000 or so we would need to address some issues in more detail (if I had the time and resources to hide away for a year, I could do that, but not now). That means some ideas are only sketched.
Nonetheless, we emphasize several important points.
First, fertility has fallen very fast everywhere: rich and poor countries, east and west, north and south, conservative and liberal societies, religious and non-religious societies (with the exception of the Jewish population of Israel; fertility has also collapsed among the Muslim population within the pre-1967 borders), you name it. Even in sub-Saharan Africa we see fast and unprecedented drops in fertility (alas, from a high initial level).
Second, and this is really interesting, the fertility collapse has been concentrated in poor and lower-middle-income countries much more than in rich countries. By now, income per capita and fertility are positively correlated within OECD countries. We conjecture this will hold globally in a few decades.
Third, and related to the second point, the fertility collapse has been concentrated among poor and lower-middle-income women within countries. In countries such as the U.S., the rich and highly educated now have more children than the poor and less educated.
Fourth, we document why we do not understand the data from the U.N. World Population Prospects. See, for example, Tables A.1 and A.2.
Fifth, we explain why some proposed mechanisms struggle when confronted with the data.
A more subtle point is at work here. Many commentators do not seem to understand the difference between proximate causes and ultimate causes. Yes, births might have gone down because fewer women are in long-run relationships. That is the proximate cause. But you need to explain why fewer women are in long-run relationships (the ultimate cause), and saying that they spend more years in school, to take one example, does not get us very far. Why do they spend more years in school? Once you start down the whole chain of reasoning, things become much harder than they seem.
The paper can be found here:
https://www.sas.upenn.edu/~jesusfv/Demographics.pdf
Comments always welcome!
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Explanation
What it says A new economics paper argues that the global fertility collapse is broader, faster, and less well understood than standard explanations imply. Fertility is falling across rich/poor, religious/secular, conservative/liberal societies; unusually, recent declines are strongest in poorer countries and among poorer, less-educated women. In some rich countries, higher-income and more-educated people now have more children than lower-income groups. The authors stress that common stories—education, delayed marriage, fewer long-term relationships—often describe proximate mechanisms without explaining the deeper cause.
Context The authors explicitly call much of their causal account “educated conjecture”: humanity is entering fertility regimes with little historical precedent, so both causes and consequences remain uncertain. They also question aspects of UN population projections and argue several popular mechanisms fit the cross-country data poorly.
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Why it matters If fertility stays far below replacement, population aging and shrinking labor forces become structural rather than temporary problems. The paper’s provocative claim is that there may be no strong economic feedback mechanism automatically restoring fertility to ~2.1, implying persistently slower growth.
Images The abstract adds that a 236-country statistical model finds the shared global fertility component peaked around 1978, while today’s decline is dominated by country-specific downward trends—219 negative, with none clearly leveling off. It conjectures that “modernity” makes larger families costly and childlessness comparatively cheap.