Escaping the 'Low Fertility Trap' through Financial Development? Evidence from Bank Deregulation in China

Using the bank deregulation in China as an exogenous shock to bank competition, we investigate how it affects local fertility. We show that the deregulation significantly increases city-level birth rates. This effect is more pronounced among cities with more employment, more household savings, and higher housing affordability. We argue that the deregulation improves local capital supply and boosts local economic vibrancy, which increases households’ income and willingness of fertility. Consistent with this notion, we find that the effect of bank deregulation on birth rates is greater for cities with more entrepreneurship, more private businesses, and more innovative activities