Longevity, Fertility and Economic Growth: Do Environmental Factors Matter?

• DOI: http://doi.org/10.1111/rode.12239
• Published date: 01 February 2017
• Author: Dimitrios Varvarigos,Intan Zanariah Zakaria
• Date: 01 February 2017

Longevity, Fertility and Economic Growth: Do

Environmental Factors Matter?

Dimitrios Varvarigos and Intan Zanariah Zakaria*

Abstract

Our study examines the effect of environmental factors on the economic decisions regarding fertility. We

incorporate health-damaging pollution into a three period overlapping generations model in which life

expectancy, fertility and economic growth are all endogenous. We show that environmental factors can

cause significant changes to the economy’s demographics. In particular, the entrepreneurial choice of less

polluting production processes, induced by a tax on emissions, can at some point in time lead to such

changes as higher longevity and lower fertility rates. Thus, we provide a novel explanation on the

positive relation between fertility rates and pollution. According to this, the causality on this relation

may also work from the latter to the former. Furthermore, our model can account for the empirically

observed N-shaped correlation between pollution and income per capita.

1. Introduction

The question on whether demographic changes are inherently linked to

environmental issues is by no means a new one. In the past, many researchers have

presented evidence and argued that population growth contributes to the decay of

the natural environment, as it has been associated with such problems as

deforestation; air and water pollution; global warming; increased waste, etc. (see

Cropper and Griffiths, 1994; Dietz and Rosa, 1997). Given this evidence, there can

be little doubt on the fact that demographic characteristics can have significant

effects on the quality of the natural environment. Nevertheless, one can cast some

doubt on the conventional wisdom that views the causality underlying this relation

as working solely through one direction—from population changes to

environmental degradation. There is no a priori reason to preclude the possibility

that changes in environmental quality may actually cause variations in the

determinants of population growth. Indeed, in her review of the literature on

demographic change and the environment, Pebley (1998) argues that

“environmental change may also have important effects on demographic outcomes”

(Pebley, 1998, p. 384).

In fact, there is now strong evidence to support the idea that pollution can affect

both the main characteristics of demographic change, i.e. the rate of mortality and

the rate of fertility. With respect to the former, the empirical investigations of

Dockery et al. (1993) and Chen et al. (2013) have uncovered a statistically

significant, detrimental effect of pollution on life expectancy. Such evidence comes

as little surprise given the well-documented, adverse effects of environmental

degradation on health. Water pollution is a major cause of gastrointestinal

*Varvarigos (Corresponding author): Astley Clarke Building, Department of Economics, University of

Leicester, University Road, Leicester, LE1 7RH, UK. Tel: +44-116-252-2184; E-mail: dv33@le.ac.uk.

Zakaria: International Islamic University Malaysia, Jalan Gombak, 53100, Kuala Lumpur, Selangor,

Malaysia.

Review of Development Economics, 21(1), 43–66, 2017

DOI:10.1111/rode.12239

©2016 John Wiley & Sons Ltd

conditions (such as diarrhoea and cholera) and it has been linked to neurological

disorders.

1

Air pollution is responsible for chronic respiratory diseases (such as

asthma and bronchitis) and for various forms of cancer (see Lave and Seskin, 1970).

The soil can be polluted by various carcinogenic chemicals that can affect humans

both directly (through contact) and indirectly (through the food chain)—see

Pimentel et al. (1998). General waste, in addition to being a major contributor to

the previously mentioned forms of pollution, attracts insects and rodents that can

be carriers of disease organisms—some of them, such as malaria; yellow fever;

plague; E-coli; and leptospirosis, being potentially fatal (see Pinnock, 1998).

Empirical evidence supporting the idea that various forms of environmental

degradation can alter household decisions towards increased fertility is provided by

Aggarwal et al. (2001) , Bhattacharya and Innes (2008), De Rose and Testa (2013)

and Brauner-Otto (2014).

While the negative effect of pollution on health and life expectancy has been

systematically analyzed in existing theories of economic growth (e.g. Pautrel, 2009;

Varvarigos, 2010; Palivos and Varvarigos, forthcoming), the fact that environmental

factors can also affect the other major component of an economy’s demographic

profile, i.e. the fertility rate, has not received the same attention from existing

theories. The main purpose of this paper is to fill this gap and develop an economic

theory that illustrates how and why environmental factors may actually cause

changes to the rate of fertility, as well as the implications of this effect for the joint

determination of capital accumulation, demographic change and environmental

quality. By doing so, we provide a formal argument in support of the idea that the

fertility rate can be another major characteristic of demographic change (in

addition to the rate of mortality) through which we can uncover a causal link from

pollution to changes in population growth—an idea supported by the

aforementioned empirical analyses.

Our analysis is theoretical in nature. We build a discrete-time overlapping

generations model where reproductive households face the probability of passing

away early during their maturity and entrepreneurs (who produce and supply

intermediate inputs) face a tax on the pollutants emitted during their productive

activity. We show that the process of economic growth will generate sufficient

resources so that entrepreneurs who face an emission tax may opt for a less

polluting production method. When this happens, the reduction in emissions per

unit of output causes an increase in longevity. Consequently, households will find it

optimal to increase their saving in order to carry more resources towards future

consumption. In addition to a higher saving rate, the latter effect is also associated

with a reduction in fertility. This is because households will try to smooth their

consumption profile by providing more labor when young, with the purpose of

counteracting the adverse effect of a higher saving rate on their current

consumption. This can only be achieved by a reduction in the time/effort they

devote towards child rearing; hence both the fertility rate and the growth rate of

the population fall.

Given the above, our analysis provides clear, testable implications. First and

foremost, it predicts a positive effect of pollution on households’ decisions

regarding higher fertility. As mentioned above, existing analyses have already

tested this result and have verified it empirically (Aggarwal et al., 2001;

Bhattacharya and Innes, 2008; De Rose and Testa, 2013; Brauner-Otto, 2014).

Note, however, that all the mechanisms that are central to the emergence of

this result in our model can also provide testable implications. In fact, these

44 Dimitrios Varvarigos and Intan Zanariah Zakaria

©2016 John Wiley & Sons Ltd