The Simplest Unified Growth Theory

Abstract:     
This paper provides a unified growth theory, i.e. a model that explains the very long-run economic and demographic development path of industrialized economies, stretching from the pre-industrial era to the present-day and beyond. Making strict use of Malthus' (1798) so-called preventive check hypothesis that fertility rates vary inversely with the price of food - the current study offers a new and straightforward explanation for the demographic transition and the break with the Malthusian era. Employing a two-sector framework with agriculture and industry, the paper shows that agricultural productivity growth makes food goods, and therefore children, relatively less expensive. Industrial productivity growth, on the other hand, makes food goods, and therefore children, relatively more expensive. Fertility decline, according to the model, thus results from a period of relatively fast productivity growth in industry compared to agriculture. In part, this is caused by structural transformation in the form of labor leaving agriculture in favor of industry. The present framework lends support to existing unified growth theories and is well in tune with historical evidence about structural transformation.

Number of Pages in PDF File: 32

Keywords: Economic Growth, Population Growth, Structural Change, Industrial Revolution

JEL Classification: O11, O14, J10, J13

working papers series