Economic analysis on fertility, financial development, household debt and financial stability

The main objective of this study is to investigate the relationship between fertility and financial development and other determinants, specifically the linkages between macroeconomic variables, socio-economic factors and governance. This study is conducted in order to have a better understanding about the roles of financial development; financial depth and financial access as the effect of shadow banks system. The study covers 85 countries with data spanning for a period 2007 to 2011. As for dependent variable, we used total fertility rate as a proxy for the impact of fertility. To test for independent variables, ranging from financial development, macroeconomic, socio-economic and governance factors, we used private credit, deposit money, liquid liabilities, banking efficiency, financial openness, trade openness, female employment, human development, and last but not least, set of governance indicators; voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corrupt. Using system GMM estimator, the study provides evidence in support of previous theories whereby the impact of financial development on fertility was found to be inverse relationship which means that an increase in financial development will reduce the fertility choice. Similarly, real GDP per capita, trade openness, female employment, human development, bank efficiency, financial openness, and governance have negative impact to fertility. The second objective was to explore the relationship of fertility and household debt due to shadow banks system as a consequence of financial development and deepening. This is motivated by the ever increasing household debt and the failure of existing literature to show the relationship between household debt and fertility. The same GMM was used and the study suggests that the level of household debt and fertility rate are directly related, which means that an increases of number of children parents decide to have will increase the household debt level. As for other control variables; real GDP per capita, interest rate, house price and wealth, there is positive impact on household debt. Meanwhile, household debt has negative relationship between saving, inflation and unemployment. The third objective of the thesis investigates the effect of fertility on financial stability and its determinants particularly the relevance of demographic change. This is motivated by the huge impact of demographic change (increasing ageing population and low fertility level). Population ageing and low fertility tend to lower both labour force participation and saving rates (change bank business model), thereby raising concerns about a future slowing economic growth and financial instability. The system GMM results shows that fertility level somehow act as a buffer and reflect to the degree of stability to the financial system. An increase in fertility will contribute to lowering the financial stability. As for other two demographic variables; old population has adverse relationship to the financial stability in developed countries and youth population has direct relationship to the financial stability. As a matter of policy implication, the nations, financial sectors and economies should take pro-active active steps and enhance policies in handling the inter-related issue of decreasing fertility, financial development, household debt and financial stability as well especially in developed countries, but not necessarily to overlook the impact of the issues in developing countries.

Text FEP 2019 35 IR.pdf Download (5MB)

Actions (login required)

View Item