Facilitating fertility decline through economic development: a principal-agent analysis of local bureaucratic incentives in China's fertility transition

The global fertility transition, including China's dramatic decline despite a traditionally pronatalist stance, has been primarily explained through economic and sociological lenses. Economic theories emphasize the cost-benefit analysis of childbearing, highlighting increasing opportunity costs and decreasing utility of children in modern economies. Sociological perspectives focus on the shift in fertility norms and the decline of community authority, allowing for individualistic fertility choices. However, significant fluctuations in fertility rates throughout the 20th century, unrelated to the steady growth in GDP, highlight the crucial role of political actions. Political science has largely overlooked these indirect bureaucratic processes, focusing instead on direct, coercive policies and their mechanical execution. This research aims to bridge this gap by investigating how bureaucratic incentives influenced fertility decline in China, specifically exploring the interplay between local officials' career advancement and their strategies for achieving fertility targets. The study leverages principal-agent theory to understand how local officials, as agents, responded to central government directives regarding fertility reduction, considering economic development as a key strategic tool.

Existing research on fertility transition predominantly relies on economic and sociological paradigms. Economic theories posit that fertility decisions are based on a cost-benefit analysis; as economies modernize, the opportunity cost of having children increases, leading to fewer births. Sociological perspectives emphasize changing societal norms and a decline in community authority, empowering individuals to make independent reproductive decisions. However, these models fail to fully account for the significant fluctuations in fertility rates observed in many countries throughout history, often linked to specific government policies and campaigns. While political science acknowledges the influence of policy, it has typically focused on direct and coercive measures, neglecting the more nuanced indirect influences of bureaucratic processes. This study addresses this gap by integrating principal-agent theory with the established economic and sociological models to offer a more comprehensive understanding of China's fertility transition.

The research employs a principal-agent framework to analyze the relationship between local officials' promotion incentives, economic development, and fertility decline in China (1980-2000). The study utilizes a novel dataset combining provincial-level data on officials' careers, socio-economic indicators, and fertility rates. Two primary statistical models are employed: System Generalized Method Moments (GMM) to assess the relationship between officials' promotion motivations (proxied by critical age and tenure years) and their performance in economic development and fertility decline; and Ordered Logistic Regression (OLR) to analyze the effect of economic and fertility performance on officials' career advancement (promotion, sideways move, or termination). A partial mediation analysis further examines the mediating role of economic development in the relationship between promotion incentives and fertility decline. The analysis controls for various confounding factors, including provincial fixed effects to account for regional variations in family planning policies. The study addresses potential endogeneity issues in panel data using a two-step system GMM approach. Robustness checks are conducted using alternative measures of fertility (Parity Progression Ratio TFR).

The empirical analysis reveals several key findings. First, promotion incentives significantly influenced local officials' performance in both economic development and fertility decline. Officials closer to their critical age (59) or their final year in office demonstrated a greater focus on achieving high economic growth and reducing fertility rates. Second, both economic development (measured by GDP per capita growth and industrialization) and fertility decline performance (measured by TFR decline) positively predicted an official's promotion probability. Third, there is an inverted U-shaped relationship between the rate of fertility decline and promotion odds. Excessive fertility decline (over 37% within a term) negatively impacted promotion chances, suggesting that overly aggressive birth control measures, potentially leading to social unrest, were penalized. Fourth, the study confirms the mediating role of economic development in the relationship between promotion incentives and fertility decline. Economic growth, driven by officials' pursuit of promotion, contributed to lower fertility rates. A 10,000 RMB increase in GDP per capita was associated with a 5% decrease in TFR. Robustness tests using an alternative measure of TFR yielded largely consistent results.

The findings underscore the significance of incorporating bureaucratic incentives into models of fertility transition. The results demonstrate that the pursuit of career advancement by local officials, within the context of a performance evaluation system prioritizing economic growth and fertility decline, shaped their strategies for achieving fertility targets. Economic development emerged as a more efficient and less risky strategy for local officials than aggressive birth control campaigns, which risked social instability and hence, career repercussions. The study's findings challenge the simplistic narratives that either policy or economic factors alone determined China's fertility decline. It instead reveals the complex interaction between political incentives, economic development, and the resulting fertility outcomes. This nuanced understanding has important implications for policy design and implementation in other contexts experiencing fertility transitions.

This study makes significant contributions by integrating principal-agent theory into the study of fertility transitions. It reveals the intricate interplay between bureaucratic incentives, economic development, and fertility decline in China. The findings highlight the importance of considering the indirect effects of policy implementation and the strategic choices made by local officials within a performance-based system. Future research could investigate the broader applicability of this framework to other countries and contexts, exploring the role of various institutional structures and political factors in shaping fertility outcomes. Further investigation into the specific mechanisms through which economic development affects fertility, such as changes in opportunity costs or social norms, would also be beneficial.

The study acknowledges several limitations. First, data limitations prevented the inclusion of certain control variables, such as the proportion of ethnic minorities and migrant populations, which could potentially affect fertility rates. Second, the reliability of population data in the 1990s may have been affected by local official intervention. However, the study utilizes the highest-quality data currently available and employs robust statistical methods to mitigate potential biases. The findings should be interpreted within the specific context of China during the study period.