Sat, Mar 15, 2003 page9

• Dissecting the poverty trap

  The prohibitive cost of education for children \nin the world's poorest countries must be addressed to promote sustainable economic development

  • By Omer Moav
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  Without exception, population growth in rich countries has slowed to a crawl. Average fertility rates in Europe and North America, for example, have fallen to 1.5 to 3 births per woman. By contrast, average fertility rates in the world's poorest countries -- say, Somalia, Yemen, and Uganda -- are vastly higher, reaching more than seven births per woman. Must countries produce fewer children if they want to accumulate more wealth?

  All available historical and contemporary evidence suggests that they must. Rich countries' transition from subsistence economies to sustained growth and prosperity was conditioned on a profound demographic shift--occurring in the 19th century in Western Europe and throughout the 20th century in East Asia--in which fertility rates fell dramatically. The last two decades have witnessed similarly sharp fertility declines in poor countries that are now showing solid signs of economic progress.

  In Egypt, for example, fertility rates declined from 4.8 to 2.9 children per woman in the last 15 years. During the last decade, Egypt's average annual per capita income grew by 2.6 percent. During the same period, Tunisia's rate of population growth fell by more than 50 percent, to a European level of slightly more than two children per woman, while per capita income grew at an impressive annual rate of 3 percent. Botswana's incredible annual per capita income growth of approximately 13 percent in the last decade was accompanied by a decrease from nearly six children per woman to less than four.

  

  ILLUSTATION: MOUNTAIN PEOPLE

  Simple math

  Why is rapid population growth bad for a country's standard of living? The math is simple: more people means that (on average) everyone gets less. A growing population dilutes not only the accumulation of physical capital, but also human capital. The quality of children in poor households goes down as their quantity goes up, because poor families with many children are unable to invest enough in the education of each child to ensure that future adults benefit from a key determinant of economic success.

  One reason that the poor have high fertility rates and invest little in education is because raising children in poor countries is cheap. Children go to work at relatively young ages, and the prevalence of low wages--particularly for women--means that the cost of parental time is negligible relative to other opportunities. Most important, the cost of educating a child relative to the cost of having additional low-educated children is very high in poor countries.

  In other words, families in rich countries, who are relatively well educated, have a comparative advantage in "child quality," whereas parents in poor countries have a comparative advantage in "child quantity." For example, while the ability of a mother to feed her child is not highly related to her level of human capital, her effectiveness in helping her children with their school homework increases with her own level of education.

  As a result, poverty in poor countries persists over long periods of time. Poor people with little education choose high fertility rates and thus low quality children. These children grow up to be poor adults, and the cycle goes on, viciously. In addition, the negative impact of low child quality on economic performance is amplified by the diluting effect of population growth on the accumulation of physical capital.

  What can be done to break this pattern? Policies such as tax benefits for large families, child allowances, and subsidized day care and meals--all of which reduce the cost of raising children--may be attractive in the short term. But they have a negative impact on income in the long run because they encourage households to increase fertility rates.

  Relative costs

  What is needed is precisely the opposite: an increase in the cost of child quantity. Increasing the cost of raising a child creates a powerful incentive for households to reallocate resources towards improving child quality through higher investment in education. This change in relative costs can release a country from the trap of poverty, setting the stage for a demographic transition and economic advancement.

  A revealing example of the effect of policy on fertility patterns comes from the poorest groups in Israel. Fertility rates among Israel's ultra-Orthodox Jews are exceptionally high, averaging six births per woman. But in the 1950s and 1960s, before the introduction of generous child allowances to large families, fertility rates among the same group were significantly lower--just three children per woman. Moreover, as a result of the benefits, fertility rates among Israeli Bedouins have remained probably the highest in the world, at nearly eight children per woman.

  The implications of this may at first glance seem inhumane, but they are straightforward and unavoidable. Canceling, or even reversing, policies that reduce the cost of bearing a high quantity of children would contribute to higher living standards over the long run.

  Public schooling, too, can release people from the poverty trap, because highly educated people have a comparative advantage in raising quality children. Policies that encourage economic growth therefore include reallocating government resources or foreign aid from programs that reduce the cost of raising children to financing for public education. All it takes is one generation to break the cycle of choosing quantity over quality. Even temporary improvement in educational opportunities could permanently affect the level and distribution of skills in the economy.

  Omer Moav is a professor of sociology and economics at Hebrew University of Jerusalem.
  

  Copyright: Project Syndica
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