Author: Seewon Kim(Chonnam National Univ.)

<Abstract>

The concentration of population in cities can have a positive effect on the fertility rate through agglomeration economies on one hand, but on the other hand, it can lower the fertility rate by incurring congestion costs. Based on these theoretical predictions, this study examines the hypothesis that increases in housing sale prices and Jeonse prices, as well as reductions in residential area—representative congestion costs associated with population concentration—are major factors contributing to the decline in the fertility rate in South Korea. To this end, a panel dataset consisting of 83 cities is constructed and a theoretical model is estimated. To control for the endogeneity of housing prices, variables lagged by 10 years are used as instrumental variables in the estimation, and consistent results in line with the theoretical predictions are obtained. Specifically, higher apartment sale prices and Jeonse prices, and smaller residential areas within a city, are associated with lower fertility rates. These results are robust to the inclusion of various control variables.