Physical and human capital, fertility, and childcare services

We shed light on a nexus between fertility transitions and economic growth patterns. We construct a two-sector overlapping generations (OLG) model with endogenous fertility, physical capital, and human capital, where one sector produces goods, and another produces childcare services. If the elasticity of fertility for expenditure on childcare services is zero, the economy experiences endogenous growth, and fertility does not depend on physical and human capital, but it increases with parental child-rearing time. On the other hand, if elasticity is positive, the economy converges to a steady state, and the number of children becomes the homogenous function of degree of elasticity (less than one). In other words, fertility is the decreasing-return-to-scale function of physical and human capital. We show that a subsidy policy for education is more desirable than a subsidy for childcare services.