From Malthus to Modern Growth: The Three Regimes Revisited

This paper sets up a model which replicates the stylized facts of the economic and demographic development of western society the last couple of millennia, as described by Galor and Weil (AER, 1999). Under an initial Malthusian Regime the growth rates of population and income are both low, and the relation between income and population growth is positive. Thereafter follows a Post-Malthusian Regime, where the growth rates of income and population are higher, but the relation between income and population growth is still positive. Finally, the economy transits into a Modern Growth Regime, in which the population growth rate is low, but the growth rate of income is higher than in the Post-Malthusian Regime, and the relation between income and population growth is negative. The model's transition from the first regime to the second follows from a population externality: as the earth becomes more populated transmitting skills form one generation to the next becomes more effective. The transition from the second regime to the third occurs when parental human capital reaches a critical level at which altruistic concerns for children's education becomes operative, triggering a substitution from quantity to quality of children.