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By David de la Croix

Outlines key parallels among demographic improvement and financial results, explaining how fertility, development and inequality are similar.

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From recent research on developing economies we know that fertility differentials between high- and low-educated mothers can be quite large (Kremer and Chen (2002)). We extend the model of Chapter 1 to capture the channel from inequality to growth going through fertility. One difference with the model of Chapter 1 is that the distribution of human capital is a continuous distribution instead of a two-point distribution. This allows us to represent the real world more accurately, which is important if we want to capture the link This chapter uses some material published in de la Croix and Doepke (2003).

We assume that the average human capital of teachers equals the average human capital in the population h¯ t , so that education cost per child is given by et wt h¯ t . The assumption that teachers instead of parents provide education is crucial for generating fertility differentials. It implies that the cost of education is fixed and does not depend on the parent’s wage. Education is therefore relatively expensive for poor parents. In contrast, since raising each child takes a fixed amount of the parent’s time, having many children is more costly for parents who have high wages.

17). 23). This procedure can be used to compute an equilibrium for any initial conditions. The future distribution of human capital is always well defined. e. the limiting distribution is degenerate). The growth factor of output and human capital is: g =μ η η(φ − θ ) 1−η if κ = 1 − τ (endogenous growth), 1+ρ otherwise (exogenous growth), and the growth factor of population is: N = (1 − η)γ . 23). 23). Along this balanced growth path, there is no longer any inequality among households. This holds because we have assumed that households differ only in their initial level of human capital.

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