*** 8/10/26 - New Paper - Terra Incognita: The Economics of a Shrinking World ......................

[Buzz Sawyer]

Terra Incognita: The Economics of a Shrinking World 

Jesus Fernandez-Villaverde∗ University of Pennsylvania, NBER, and CEPR

Patrick Norrick Northwestern University  

 August 10, 2026   

https://www.sas.upenn.edu/~jesusfv/Demographics.pdf

from paper 

Abstract 

"As of 2026, humanity is likely below replacement fertility. That has never happened before, not in wars

 or pandemics. But the real surprise is that the fall has been concentrated in low- and middle-income 

countries and among poorer and less educated women. We fit a single-factor model to 236 countries 

since 1950: the common component peaked in 1978, and what drives fertility down today are country

-specific trends, 219 of them negative and not one leveling off. None of the commonly cited mechanisms

 can account for this pattern, so we offer a conjecture: modernity itself, which makes a third child expensive 

and childlessness cheap. Children come in integers, so it takes very little to move a cohort’s fertility rate 

from 1.8 to 1.3. And nothing in an economy pushes fertility back to 2.1. We close with the main economic

 consequences, in particular slow growth. Keywords: fertility decline; demographic trans  

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 Three popular candidates to account for the fall in fertility are shifts in preferences and social

 norms, smartphones and their effect on in-person interaction, and rising housing prices.

      It is too early to adjudicate among these. But, in our reading, smartphones accelerate the 

change in the TFR more than they cause it, and housing prices have an ambiguous effect because 

they make owners richer and renters poorer. We are left with shifts in preferences and social norms 

more by elimination than by conviction. 

     Thus, we will conjecture a more speculative possibility: modernity itself. We live in a society built 

around large organizations and formal credentials, which makes a third child expensive and childlessness

cheap, and that circumstance has created a mismatch between women’s position outside the home 

and men’s inside it. As modernity has spread everywhere, even to countries with low income per capita,

 fertility has also fallen everywhere.  

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7 Concluding remarks 

When one of us starts his undergraduate course on world economic history, he motivates the semester 

by arguing that history teaches us lessons about today’s economy. Unfortunately, that is not true of population.

We are entering demographic terra incognita: we have never seen TFRs as low as today’s. 

      Will they recover?  We do not know. Based on the data available as we write these lines, our best

guess is a small rebound from tempo effects, but, short of a large change in society, not much more 

(see, for a similar assessment, Geruso and Spears, 2026). East Asia is likely stuck near 1, given its 

unbalanced gender norms and toxic education systems. Latin America faces the same gender problem

 plus weak growth prospects, so we expect something  around 1.2. Northern Europe has more egalitarian

 family structures and might hold near 1.5. The very religious  societies are probably the only ones that 

will sustain 1.8. Within countries, the higher-income and more educated will have more children 

than the lower-income and less educated.  

       These trends, if unchanged, will translate into large changes in world population and its distribution,

 both between and within countries. We may end up in a shrinking world where the very rich nations have

 the highest TFRs, and even those will be below replacement level.

         All of this could change with AI or shifts in population composition. We will see. But on the current 

evidence, deep sub-replacement fertility is the “new new normal,” and unless we find a way to reorganize

 our societies, we had better learn to handle it as best we can. We do not have a map. What we have 

birth numbers, and those are sobering. In these waters, the pretense of knowledge is the 

most dangerous temptation