This paper develops the theoretical foundations and the testable implications of the various mechanisms that have been proposed as possible triggers for the demographic transition. Moreover, it examines the empirical validity of each of the theories and their signi…cance for the understanding of the transition from stagnation to growth. The analysis suggests that the rise in the demand for human capital in the process of development was the main trigger for the decline in fertility and the transition to modern growth

How did Europe escape the “Iron Law of Wages? ” We construct a simple Malthusian model with two sectors and multiple steady states, and use it to explain why European per capita incomes and urbanization rates increased during the period 1350–1700. Productivity growth can only explain a small fraction of the rise in output per capita. Population dynamics—changes of the birth and death schedules—were far more important determinants of steady states. We show how a major shock to population can trigger a transition to a new steady state with higher per-capita income. The Black Death was such a shock, raising wages substantially. Because of Engel’s Law, demand for urban products increased, and urban centers grew in size. European cities were unhealthy, and rising urbanization pushed up aggregate death rates. This effect was reinforced by diseases spread through war, financed by higher tax revenues. In addition, rising trade also spread diseases. In this way higher wages themselves reduced population pressure. We show in a calibration exercise that our model can account for the sustained rise in European urbanization as well as permanently higher per capita incomes in 1700, without technological change. Wars contributed importantly to the “Rise of Europe”, even if they had negative short-run effects. We thus trace Europe’s precocious rise to economic riches to interactions of the plague shock with the belligerent political environment and the nature of cities.

We analyze the short and long run effects of demographic ageing—increased longevity and reduced fertility—on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict per-capita growth in OECD economies to accelerate in response to demographic ageing even though taxation and the retirement age increase. If only fiscal policy were endogenous but the retirement age were held constant, the growth rate would increase less strongly, due to a surge of social security transfers and crowding out of public investment. 1

Abstract not found

Does prosperity lead to greater longevity? If so, what is the strength of the income channel? To address these questions we develop a life cycle model in which households are subject to physiological aging. In modeling aging we draw on recent research in the elds of biology and medicine. The speed of the aging process, and thus the age of death, are endogenously determined by optimal health investments. A calibrated version of the model accounts well for the observed non-linear cross-country link between longevity and income, also known as the Preston curve. (JEL: D91,I12, J17, J26) 1.

An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePEc.org • from the CESifo website: Twww.CESifo-group.org/wp T

Between 1940 and 2000 there has been a substantial increase of educational attainment in the United States. What caused this trend? We develop a model of schooling decisions in order to assess the quantitative contribution of technological progress in explaining the evolution of education. We use earnings across educational groups and growth in gross domestic product per worker to restrict technological progress. These restrictions imply substantial skill-biased technical change (SBTC). We find that changes in relative earnings through SBTC can explain the bulk of the increase in educational attainment. In particular, a calibrated version of the model generates an increase in average years of schooling of 48 percent compared to 27 percent in the data. This strong effect of changes in relative earnings on educational attainment is robust to relevant variations in the model and is consistent with empirical estimates of the longrun income elasticity of schooling. We also find that the substantial increase in life expectancy observed during the period contributes little to the change in educational attainment in the model.

Consider the following facts. In 1950 rich countries attained an average of 8.1 years of school-ing whereas poor countries attained 1.3 years –a 6-fold difference. By 2005, the difference in schooling declined to 2-fold even though per-capita income gaps did not decrease. What ex-plains the educational attainment differences across countries and their evolution over time? We develop a model of human capital accumulation to quantitatively assess the importance of productivity, life expectancy, and growth in explaining educational attainment differences across countries and over time. Calibrating the parameters of the model to reproduce his-torical data in the United States, we find that the model with cross-country differences in productivity and life expectancy accounts for 89 percent of the difference in schooling levels between rich and poor countries in 1950 and 78 percent of the increase in schooling over time in poor countries. The model generates a faster increase in schooling in poor relative to rich economies even if their income gaps do not decrease. †Preliminary and incomplete.

We set up a simple overlapping generation model that allows us to distinguish between life expectancy and active life expectancy. We show that individuals optimally adjust to a longer active life by educating more and, if the labor supply elasticity is high enough, by supplying less labor. When calibrated to US data the model explains the historical evolution of increasing education and declining labor supply (of cohorts born 1850-1950) as an optimal response to increasing active life expectancy. We integrate the theory into a unified growth model and reestablish increasing life expectancy as an engine of long-run economic development.

Human capital theory predicts that life expectancy will impact human capital attainment. We estimate this relationship using variation in life expectancy driven by Huntington disease, an inherited neurological disorder. We compare investments for individuals who have ex-ante identical risks of HD but differ in disease realization. Individuals with the HD mutation complete less education and job training. The elasticity of demand for college attendance with respect to life expectancy is around 1.0. We relate this to cross-country and over-time differences in education. We use smoking and cancer screening data to test the corollary that health capital responds to life expectancy. 1