South Korea: Baby Bonus Boosts Births, Reduces Sex Imbalance
A 2023 study (Baby Bonus, Fertility, and Missing Women by Wookun Kim) provides novel evidence on the effects of South Korea's pro-natalist cash transfers, known as the "Baby Bonus" on fertility rates, the sex ratio at birth, and infant health. Based on granular data and leveraging policy variation across regions and time, the findings shed light on the benefits of financial incentives to boost fertility.
Key takeaways from the research:
South Korea's total fertility rate in 2015 would have been 4.7% lower in the absence of the Baby Bonus, corresponding to approximately 562,439 fewer children ever born over the life cycle of the 2015 female population. The cash transfers increased birth rates across birth orders, with an implied elasticity ranging from 0.34 to 0.58.
The Baby Bonus reduced the male-skewed sex ratio at birth, especially for third children. Without the policy, the sex ratio for third children in 2015 would have been 124.7 boys per 100 girls instead of 105.3. The cash transfers explain 53% of the decline in sex ratio since 2000.
However, the Baby Bonus also led to small reductions in gestational age and birth weight, concentrated among higher-order births, but did not impact early-life mortality. This may be explained by negative selection into childbearing, with the policy inducing more births among lower-income, less-educated parents.
The study leverages rich spatial and temporal variation in the amounts and timing of cash transfers across South Korea's 222 districts from 2000 to 2015. Kim combines this with the universe of birth and death registry data to tease out causal effects while accounting for potential confounders like demographic composition, social norms, and local economic conditions.
Kim finds that the fertility effects were driven by more children born per woman rather than mere temporal adjustments in childbearing or spatial sorting of families. The cash transfers only affected the birth rate of each specific birth order, and primarily incentivized mothers in their prime childbearing years.
Overall, the Baby Bonus has been effective at boosting South Korea's critically low fertility rates over this period. A surprising positive consequence has been the correction of the country's unnaturally male-skewed sex ratio, as the financial incentives appear to compensate for the lingering cultural preferences for sons.
However, the small adverse effects on infant health point to the policy disproportionately incentivizing births among more disadvantaged families. The cash transfers decreased the probability of the mother and father being employed, suggesting negative selection in terms of income. This suggests that financial support alone may not address low fertility, and interactions with other social policies should be considered.
Nonetheless, Kim's careful analysis demonstrates the power of detailed administrative data and sub-national policy variation to rigorously evaluate the full impacts of pro-natalist incentives. As more countries grapple with ultra-low fertility, such evidence will be critical to optimally design policy interventions. Further research is needed on the longer-term outcomes of children born under these policies and general equilibrium effects on marriage and labor markets.