Does fertility decrease household consumption? An analysis of poverty dynamics and fertility in Indonesia

This paper presents an empirical analysis of the relationship between fertility and poverty for Indonesia, a country which has experienced unprecedented economic growth and sharp fertility decline over recent decades. We illustrate the sensitivity of the effect of fertility on household consumption with respect to the equivalence scale in a unitary household framework. Using the propensity score matching method, the analysis suggests that a newborn child decreases household consumption per person by 20 percent within four years. When the estimates of equivalence scales implied by the Indonesian sample are applied, the effect of a child on household consumption is still negative, but the magnitudes are in the range of 20 to 65 percent of that found with the per-capita expenditure as a measure of consumption. Therefore, it is suggested that analysis based on the conventional measure of poverty is likely to exaggerate the effect of fertility on poverty at least because of neglect of the proper equivalence scale. Given that household preference for consumption of private goods such as children’s education is negatively associated with fertility, the test for household bargaining supports the model of the unitary household as a valid assumption for examining the relationship between fertility and household consumption. 1 Korea Development Institute, Cheongnyangni-dong Dongdaemun-gu, Seoul 130-740, Korea, Phone: +82 2-958-4742, Fax: +82 2-958-4090, E-mail: [email protected]. 2 Otto-Friedrich-Universität Bamberg, Professur für Bevölkerungswissenschaft, Lichtenhaidestraße 11, D-96045 Bamberg, Germany, Phone: +49 0951-863-2645, Fax: +49 0951-863-5644. E-mail: [email protected]. 3 Institute for Mathematical Methods in Economics (Research Unit Economics), Vienna University of Technology, Argentinierstr. 8/4/105-3, 1040 Vienna, Austria and Vienna Institute of Demography, Wohllebengasse 12-14, 6th floor, 1040 Vienna, Austria. Phone: +43 1-58801-17510. Fax: +43 1-58801-17599. E-mail: [email protected]. 4 Universita Bocconi, Viale Isonzo 25, Department of Decision Sciences, 20135 Milano, Italy, Phone: +39 02-5836-5657, Fax: +39 02-5836-5630, E-mail: [email protected]. http://www.demographic-research.org 623 Kim et al.: Does fertility decrease household consumption?