My comments on “The Population Dimension in East Asian Economic Development”

Presentation by David Weil at the Summer Conference of the Korean Economic History Society, August 26, 2022.

Professor Weil’s lecture has addressed four issues, but I would like to focus on fertility transition and its impact on economic growth to suggest a half-baked idea about how to avoid the demographic meltdown caused by fertility decline. Quality-adjusted population density certainly is a useful perspective, about which I have little to say. The overview of fertility decline in different parts of the world puts the East Asian experience nicely in perspective.

Both fertility and growth are endogenous variables, which makes it challenging to identify the causal links between the two. To measure the impact of an exogenous fertility decline on growth, Ashraf, Weil and Wilde (2013) simulated a parameterized model. Although various causal channels have been explored, the relevance of the model may be limited for the South Korean high growth from 1960-90, when rapid fertility transition occurred in parallel with a equally rapid increase in savings ratio and the spread of secondary education. In Ashraf, Weil and Wilde (2013), individuals save a fixed portion of their incomes, and schooling costs do not exist.

The fertility decline, savings boom, and educational progress were interdependent developments in the sense that child quantity and quality and financial assets represent key assets parents hold to prepare for old age. From 1960-90, the South Korean government invested in secondary schools driving the propagation of secondary schooling by making it less costly and more accessible. It also lifted financial repression consistently and rapidly improving returns for savers. The interventions probably led parents to rebalance their portfolio away from child quantity toward child quality and physical capital, transforming South Korea from being a labor- to capital abundant country and causing the country to grow rapidly through accumulation and technological progress.

I have analyzed the three-way interaction in chapter 6 of the book I am writing, The Escape from Oppression and Poverty: A Developmental History of Korea, available from https://thetwinmiracles.wordpress.com/. As I found out from simulations using three overlapping generations model, the fertility transition and savings boom were driven by the financial liberalization and to a less extent by school building, while the birth control campaign hardly mattered.

The augmented life cycle savings perspective suggests a policy alternative that might help avoid demographic meltdown without increasing public spending unsustainably. The South Korean fertility decline in recent decades has been driven importantly by the growth of social welfare, which reduces not only the need to save, but also the demand for child quantity and quality. Hence establishing a policy rule to provide a greater amount of better quality care for persons raising a greater number of children at their own expense, and vice versa, will boost fertility and the sustainability of the public sector. Likey to be politically difficult to market, the proposed reform is only too fair.

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