Poverty, altruism, and economic growth

Abstract

By examining the role of parental altruism in human capital formation, this paper presents a new mechanism linking fertility and growth. The main conclusion is that parental altruism operates only at higher income levels. Parents start investing in child quality only when their income reaches a certain level. Then fertility rate begins to decline and capital per worker to increase. Thus, income may grow in a non-monotonic pattern. This stratified parental altruism suggests the possibility of a poverty trap. Poor families may converge to a steady state with low income, high fertility, and low human capital investment. Public policies such as subsidy to education and public provision of human capital are viable options for overcoming poverty. Income subsidy policies are shown to be ineffective.