IMF Working Papers

The total fertility rate—the average number of births per woman—in Europe is already at 1.46, which is significantly below the replacement rate of 2.1, where fertility compensates for mortality and thereby the population replaces itself from one generation to the next. Falling fertility rates will have far-reaching social and economic consequences, and therefore it is a critical empirical exercise to estimate the impact of below-replacement fertility on income growth and test quantitatively for the existence of mitigating factors that could inform appropriate policy responses. In this paper, I address the endogeneity bias caused by reverse causality by implementing an instrumental variable approach and use exogenous variation in the comparative abortion index as an instrument for the total fertility rate. These results show that fertility has a significant positive effect on real GDP per capita growth in a sample of 42 European countries over the period 1960–2022. This means that the downward fertility transition across Europe, accompanied by fast-aging population, is a significant drag on income per capita growth.