Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century
The old-age security hypothesis establishes that one important reason why parents have a large offspring is to ensure that they will receive financial support from them in old age. In this paper we use data on fertility and financial development in 19th century U.S. to indirectly test this theory. In particular, we explore whether more developed local financial markets reduce the incentives for families to have a large offspring. After controlling for several factors likely to create cross-county variation in fertility levels and for potential spatial correlation, we find that the presence of a bank and the degree of financial development in a given county are strongly associated with lower children-to-women ratios. We find compelling evidence for the old-age security hypothesis.
We thank Antonio Navas, Bastien Chabe-Ferret and seminar participants at the 2013 Warwick Summer School in Economic Growth, at the 2014 RES conference in Manchester and at the 2014 ESPE conference in Braga for their useful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.