Helping a developing economy to escape from the poverty trap of high population growth and
low education means increasing the relative cost of having lots of children, according to new
research by Dr Omer Moav. He advocates scrapping policies that provide tax discounts for
large families, child allowances and subsidised day care and meals. Restrictions on child
labour and increased funds for public schooling will also encourage families to focus on the
‘quality’ of their children rather than their quantity.
The research, published in the Economic Journal, examines households' decisions about
fertility and children’s education, and offers an explanation for the persistence of poverty within
and across countries. It argues that educated parents have a comparative advantage in raising
quality children, whereas for poor and less educated families, for whom children are ‘cheap’, a
comparative advantage in numbers arises.
Consistent with the well-known evidence, poor households thus choose relatively high fertility
rates with relatively low investment in their offspring's education – and therefore, their offspring
are poor too. In contrast, high-income families choose low fertility rates with high investment in
education, and therefore, high income persists.
With no exception, population growth is slow among the developed countries and investment
in education is high. Average fertility rates range from one and a half to three births per
woman, and secondary school enrolment is virtually universal.
In contrast, average fertility rates among many of the poor countries around the world are
significantly higher – reaching up to seven children per woman – and investment in education
is much lower. For example, in the developing countries, only 75% of children reach fifth grade
and less then half are enrolled in secondary education.
These differences imply that a pre-condition for the economic transition from living in the
vicinity of subsistence to sustained economic growth, experienced in the past by today’s richer
countries, is a ‘demographic transition’ in which fertility rates decline and education increases.
Why is population growth bad for economic development? A rapidly growing population dilutes
the accumulation of physical capital per capita. Moreover, due to limited household resources
and the trade-off between the quality and quantity of children, poor households with many
children cannot invest highly in the education of each child, depriving the future adult
population of a crucial ingredient of economic success.
Why, therefore, do the poor have high fertility rates and low investment in education? In poor
countries, raising children is cheap. Children work at relatively young ages and, due to the low
wages, particularly female wages, the cost of parental time required for raising a child is low.
Most important, the cost of educating a child compared with the cost of having additional, low
educated children is high.
What can be done? An increase in the cost of ‘quantity’ – the cost of raising a child that is not
associated with the child's quality – can induce a reallocation of resources within the
household towards increased child quality at the expense of quantity. It can, therefore, bring
about an increase in investment in education and enhance economic growth. Furthermore, this
change in relative costs can release an economy from the trap of poverty, setting the stage for
a demographic transition and economic growth.
To raise the cost of children, policies such as tax discounts to large families, child allowances
and subsidised day care and meals, should be cancelled. Child labour restrictions should be
adopted and enforced, thereby increasing the cost of children.
Moreover, public schooling can release the economy from the poverty trap. Growthencouraging
policies include, therefore, reallocating government or foreign aid resources from
quantity-cost reduction measures to the financing of public schooling.
ENDS
Notes for editors: ‘Cheap Children and the Persistence of Poverty’ by Omer Moav is
published in the January 2005 issue of the Economic Journal.
The author is in the Department of Economics, Hebrew University, Mt. Scopus, Jerusalem
91905, Israel.
For further information: contact Omer Moav on + 972-2-5883121 (fax: +972-2-5816071;
email: msmoav@mscc.huji.ac.il; website: http://economics.huji.ac.il/facultye/moav/moav.html);
or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email:
romesh@compuserve.com).