Economic Uncertainty, Cultural and Ideational Transition, and Low Fertility

Abstract

Increased objective uncertainties, upward movement in the hierarchy of needs, and associated cultural and ideational transition are inherent to modern societies. These factors were previously treated as independent macro-shocks and studied separately, without regard for their interactions. In this paper, we provide an all-around framework to interpret fertility behavior and low fertility in developed economies, to compensate for the isolation of economic uncertainty from a cultural and ideational transition in previous empirical studies. In this regard, we conduct an empirical analysis of panel data of 34 OECD countries from 2000 to 2018, to discuss the impact of economic uncertainty on the fertility rate and the moderating effect of cultural and ideational transition on that impact. Below are our findings: (1) economic uncertainty significantly inhibits the fertility rate, and such an inhibiting effect is found to be underestimated after endogeneity is controlled; (2) according to heterogeneity analysis, the inhibiting effect of economic uncertainty on the fertility rate is stronger after the 2008 financial crisis and among low-income economies and countries where Confucianism is practiced; (3) a significant negative moderating effect of cultural and ideational transition on the relationship between economic uncertainty and fertility rate is observed, indicating that the inhibiting effect of structural dimensions that combine objective and subjective factors regarding the fertility rate may be self-reinforcing; and, (4) further tests show that economic uncertainty and cultural and ideational transition affect the fertility rate by means of the effect of delayed parenthood, the substitution of cohabitation for marriage, and fertility preferences. We find that fertility behavior is cumulatively affected by both economic uncertainty and cultural and ideational transition. This implies that reducing economic uncertainty and fostering a culture that encourages marriage and fertility are fundamental for increasing the fertility rate in China, a country resorting to the third-child policy to promote a fertility rebound.

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