The aim of this paper is to investigate whether there has been a fundamental change in the relationship between economic conditions and fertility. We use panel data methods to study the short-term changes in total fertility and the unemployment rate in a range of Organisation for Economic Co-operation and Development (OECD) countries from 1957 to 2014. We find that although fertility was counter-cyclical before 1970, with good economic times being associated with lower fertility, since then it has become pro-cyclical, with good economic times being associated with higher fertility.
This paper proposes a new likelihood-based panel cointegration rank test which extends the test ofÖrsal and Droge (2012) (henceforth Panel SL test) to allow for crosssectional dependence. The dependence is modelled by unobserved common factors which affect the variables in each cross-section through heterogeneous loadings. The common components are estimated following the panel analysis of nonstationarity in idiosyncratic and common components (PANIC) approach of Bai and Ng (2004) and the estimates are subtracted from the observations. The cointegrating rank of the defactored data is then tested by the Panel SL test. A Monte Carlo study demonstrates that the proposed testing procedure has reasonable size and power properties in finite samples.JEL classification: C12, C15, C33 Keywords: panel cointegration rank test, cross-sectional dependence, common factors, likelihoodratio, time trend * Financial support by the German Research Foundation (DFG) through the project "Likelihood-based panel cointegration methodology and its applications in macroeconomics and financial market analysis" is gratefully acknowledged. †
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