The purposes of this paper are to formulate an econometric model and to analyse the interactions between a set of demographic variables and that of economic variables of the Republic of Korea. It is hoped that the result of the study would contribute to formulating a more efficient economic-demographic policy.
The model in this study is based on the economic theory of fertility which regards the fertility pattern as a consumer behavior reacting to various changing factors of demand for children.
In this paper, regression method is used to analyse the hypothesized interactions among various selected variables with the cross-sectional data for the 33 cities and 140 guns of Korea in 1978. The regression method used in this study is first and second stage multiple regression to avoid the simultaneity bias.
Variables representing the investment in human capital and the cost of children as measured by the female labor force participation rate are included in the model to minimize the specification bias.
Investment in human capital can be divided into two important components, which are investment in education and that in health. Each component of investment in human capital is measured in several ways. The female labor force participation rate is considered as the cost of children variable under the assumption that the income forgone due to child raising constitutes opportunity cost.
The major findings from this study are as follows. Increasing income results in reducing fertility because substitution effect outweighs income effect. The second stage regression result reveals that the pure income effect on fertility is positive, although statistical significance is about 0.1. This indicates that children cannot be considered as inferior goods.
As expected, the higher is the investment in human capital, both in education and health, and the higher is the female labor force participation rate, the lower is the fertility rate as revealed by the second stage fertility equation. Finally, the second stage feedback regression results indicate that a lower fertility rate is associated with a higher per capita income.
