Does financial development contribute to fertility decline in Malaysia? An empirical investigation

• Main Authors: Asma Rashidah Idris, Muzafar Shah Habibullah, Badariah Haji Din
• Format: Article
• Language: English
• Published: Penerbit Universiti Kebangsaan Malaysia 2018
• Online Access: http://journalarticle.ukm.my/19635/1/jeko_521-16.pdf; http://journalarticle.ukm.my/19635/; https://www.ukm.my/jem/issue/v52i1/
• Institution: Universiti Kebangsaan Malaysia

The “old-age security” and “complete substitutability” hypotheses suggest that financial market can affect individuals’ decision to have less or more children. It has been recognised in the literature that at low level of financial development, children are considered an asset and a form of investment that could provide returns and security during old age. However, at higher level of financial development, individuals have more access to the financial market that can provide funds and financing during old age and as a result the demand for children is less. Furthermore, increase in female labour participation rate in the financial industry as well as in other economic sectors will also induce demand for fewer children. In Malaysia, the development of banks as well as the non-banking financial institutions has broadened credit accessibility to households and it could affects household’s decisions over the number of children they should have. Thus, the present paper empirically investigates the long-run relationship between fertility rate, financial development, income and household consumption in Malaysia for the period 1975 to 2013. In this study we employed the autoregressive distributed lag (ARDL) modelling approach for the testing of cointegration. Our results suggest that financial development and household consumption expenditure are negatively related to fertility rate, while fertility rate portrays a non-linear long-run relationship with income, thus exhibiting an inverted U-shaped curve with income in Malaysia.