Urbanization, Long-Run Growth, and the Demographic Transition∗

Advanced economies undergo three transitions during their development: 1. They transition from a rural to an urban economy. 2. They transition from low income growth to high income growth. 3. Their demographics transition from initially high fertility and mortality rates to low modern levels. The timings of these transitions are correlated in the historical development of most advanced economies. I unify complementary theories of the transitions into a nonlinear model of endogenous long run economic and demographic change. The model reproduces the timing and magnitude of the transitions. Because the model captures the interactions between all three transitions, it is able to explain three additional empirical patterns: a declining urban-rural wage gap, a declining rural-urban family size ratio, and most surprisingly, that early urbanization slows development. This third prediction distinguishes the model from other theories of long-run growth, so I test and confirm it in cross-country data. JEL-Codes: E13, J11, N10, O18, O41 ∗I am grateful for helpful comments and guidance from Loukas Karabarbounis, Robert Lucas, Brent Neiman, Nancy Stokey, Harald Uhlig, and participants at the University of Chicago’s Capital Theory, Applied Macro, and Growth and Development Working Groups. †Website: www.jonathanjadams.com Email: [email protected]