The Race between Lewis and Malthus

Abstract

This paper examines how the fertility transition affects structural change, focusing on heterogeneity in demographic behavior. With high fertility of households in the traditional sector, inter-sectoral income spillovers and imperfect labor mobility, rising urban productivity fuels rural demographic growth. The early development process is thus the result of two conflicting forces: the Lewisian absorption of surplus rural labor in productive industries and its Malthusian regeneration. I first document how this conflict has led to structural stagnation in several developing contexts, both historical and contemporary. I then combine the Malthusian and Lewisian frameworks in a novel model of endogenous fertility and labor mobility generating structural stagnation. Finally, I estimate the model on a new subdistrict-level demographic dataset for colonial India, providing an empirical assessment of the rural-urban demographic gap.