MARKET TRANSACTION COSTS IN INDUSTRIALIZATION AND DEMOGRAPHIC TRANSITION

Authors


* Address for correspondence: Lewis S. Davis, Assistant Professor of Economics, 211D Social Sciences Building Union College, 807 Union Street, Schenectady, NY 12308. Email: davisl@union.edu. This paper was prepared for a special issue of the Pacific Economic Review. I wish to acknowledge the helpful comments of the guest editor, Guang-Zhen Sun, and an anonymous referee for helpful comments on earlier drafts of this paper.

Abstract

Abstract.  This paper presents a unified theory of growth involving human capital accumulation, labour specialization, market expansion and falling fertility rates. The model suggests that these processes, often analysed separately, are intimately linked. The accumulation of specialized human capital increases the gains to labour specialization, leading agents to increase their participation in markets and reduce time spent at home. This raises the opportunity cost of child raising, lowering fertility rates. The model suggests a central role for market transaction costs in determining the timing and rate of fertility declines linked to rising income.

Ancillary