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Cervellati, Matteo; Sunde, Uwe (2007): Human capital, mortality and fertility: a unified theory of the economic and demographic transition. IZA Discussion Papers / Forschungsinstitut für Zukunft und Arbeit, Bonn, 2905
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This paper argues that accounting for the dynamic interactions between endogenous changes in longevity, the education composition of the population, and the associated fertility differential is crucial for understanding the economic and the demographic transition. In the model, heterogeneous individuals make optimal decisions about fertility, education of their children and type and intensity of investments in their own education. The interplay between different dimensions of mortality, and education and fertility decisions delivers a phase transition that replicates stylized facts that previously have been difficult to reconcile. Simulations illustrate the model dynamics and their consistency with historical and cross-country data.