Poverty and Fertility - An Instrumental Variables Analysis on Indian Micro Data

The gender of the first two children is used as a natural experiment to estimate the causal effect of fertility on poverty of rural nucleus households in India. In India, male children are viewed as a better source of insurance and support to the family in old age. Thus, having two girls can proxy an exogenous increase in fertility. Using household micro data from the 1993-94 Indian Quinquennial Survey (5th wave), estimation results indicate that fertility significantly positively affects poverty, but that the effect is halved when endogeneity is allowed for. Also, declining fertility accounts for almost a third of the poverty reduction in rural India between 1987/88 and 1993/1994.