ASIAN DEMOGRAPHIC TRANSITION: AN INSTRUMENTAL-VARIABLES PANEL APPROACH

We examine patterns in fertility during the demographic transition using a panel data set across 25 Asian countries for 1975-2003. The adult female literacy rate is used as an instrumental variable for the endogenous female labor force participation rate, which has been unsolved in the population literature. The preliminary panel data analysis suggests that relative cohort size is significant in explaining the decline in fertility before controlling for simultaneity bias. This result, however, may be spurious. After considering the instrumental variables estimation in the panel data structure, the age structure variable no longer plays a dominant role in explaining declining fertility rates in many Asian countries. Systematic differences were found between East and South Asia. A policy implication in South Asia is that development may reduce fertility directly through increasing income rather than indirectly through a change in female labor force participation or urbanization. In East Asia, the indirect effects dominate.