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Working Paper

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Societies in which fertility is falling and human capital investment per child increasing are experiencing a “quantity-quality transition.” Such transitions imply, over the long term, both slower rates of labor force growth and higher levels of human capital per worker. They are fundamental to economic development. Yet, these transitions are neither automatic or self-propelling. Their momentum depends on competing forces acting at both the family and the macroeconomic levels; the balance can easily tip against further transition. Family decisions about schooling are largely motivated by its private economic returns. These returns are determined in labor markets, and here the logic of supply and demand applies. When families decide to invest more deeply in their children, they collectively produce right-ward shifts in the supply of educated young labor. If other things are held fixed, the rate of return to schooling should then fall, and this, in turn, should dampen parental enthusiasm for further educational investments. Reductions in the rate of return should also weaken the case for continued reductions in fertility. Unless they are counterbalanced by other forces, such negative feedbacks would tend to bring a quantity-quality transition to a halt. The aim of this paper is to explore both the negative and positive feedbacks that have affected the quantity-quality transition in Asia. We assemble the leading hypotheses and evidence on the macroeconomic forces, both domestic and international, that could influence returns to schooling. We also examine family factors, giving particular attention to the intergenerational links that seem to have maintained the momentum of the Asian transition. Our conclusion is that negative feedbacks associated with increases in the relative supplies of educated labor have been largely offset by beneficial macroeconomic change (resulting from increases in the stock of physical capital, substantial technological change, and trade) and by powerful family-level effects that, over the generations, have continued to propel the transition.