Human Capital and Economic Development

Robert Tamura
Working Paper 2002-5
April 2002

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This paper develops a general equilibrium model of fertility and human capital investment under uncertainty. Uncertainty exists in the form of a probability that a young adult does not survive to old age. Parents maximize expected utility arising from own consumption, their fertility, and the discounted utility of future generations. There exists a precautionary demand for children. Young adult mortality is negatively related to the average human capital of young adults. Therefore, rising human capital leads to falling mortality, which eventually induces a demographic transition and an acceleration in human capital investment. The model can fit data on world and country populations, per capita incomes, age at entry into the labor force, total fertility rates, life expectancy, conditional life expectancy, and infant mortality.

JEL classification: O0, O57, O10, N10

Key words: fertility, mortality, demographic transition, economic development

The author thanks the Federal Reserve Bank of Atlanta for research support in the later stages of this project and the participants at the Midwest Macroeconomics Meetings at the Federal Reserve Bank of Atlanta, ASSA winter meetings at New Orleans, the University of Notre Dame, Brown University, and the Federal Reserve Bank of New York for helpful comments and suggestions. In particular, the author would like to single out Tim Kehoe's comments at the winter meetings for pushing the author to add a true sensitivity analysis. Tamura also thanks Scott Baier, Gary Becker, Gerald Dwyer, Ed Lazear, Robert E. Lucas Jr., Kevin M. Murphy, Curtis Simon, Paula Tkac, David Weil, and Sherwin Rosen. The author gratefully acknowledges the Center for International Trade for partial financial support.

Please address questions regarding content to Robert Tamura, John E. Walker Department of Economics, Clemson University, Clemson, South Carolina 29634-1309, 864-656-1242, rtamura@clemson.edu.