ELSEVIER Journal of Economic Dynamics and Control 20 (1996) 1237-1261 From decay to growth: A demographic transition to economic growth Robert Tamura Department of Economics. Universi& of Iowa, Iowa City. IA 52242, USA (Received September 1994; final version received July 1995) Abstract Altruistic parents rationally choose fertility and human capital investments in their children. A rising rate of return to human capital investment and a conditional external effect in human capital investment produce: (1) two development regimes, a Malthusian regime of high fertility and no human capital investment and a perpetual growth regime of low fertility and rising human capital, (2) conditional human capital convergence within regimes, (3) a demographic transition to economic growth, and (4) accelerating growth. As richer countries grow, the conditional external effect continually raises the rate of return on human capital and causes a demographic transition to economic growth by Malthusian countries. Key words: Demographic transition; Economic growth; Convergence JEL classi$cation: 04; 513; N3 With the coming of the modern age, formal education as- sumed a signijkance far in excess of anything that the world had yet seen. The school, which had been a minor social agency in most of the societies of the past, directly Part of this manuscript was completed while I was a National Fellow at the Hoover Institution at Stanford University. Their generous financial support is gratefully acknowledged. I have benefited greatly from the comments of a very large set of individuals. Among the many are: Gary S. Becker, Satyajit Chatterjee, Dean Corbae, Gilbert Hewett, Beth Ingram, Narayana Kocherlakota, Lars Muus, Forrest Nelson, Brooks Pierce, Sherwin Rosen, Craig Schmitt, Nancy Stokey, Chuck Whiteman, George Neumann, and John Kennan. I owe a particular debt of gratitude to Barbara McCutcheon, Kevin M. Murphy, and Robert E. Lucas, Jr. I thank the workshop participants at the University of Iowa, Iowa State, M.I.T., and S.E.D.C. meetings. All errors are mine. 0165-1889/96/$15.00 0 1996 Elsevier Science B.V. All rights reserved SSDI 0165-1889(95)00898-6