The effects of financial incentives for newborns in Korea

Although Korea has successfully experienced a demographic transition, its super-low fertility (1.08 in 2005) has become its serious public issue. To encourage couples to have additional children, since 2003 district-level local governments have begun providing financial incentives (FIN) to the parents who have registered the birth of their child with their local government, with FIN generally higher for children of second or higher order births. The objective of this study is to assess the effects of these FIN programs on the household decision to have an additional child. We used four datasets: 1) data for FIN programs of local governments for the birth registration; 2) birth registry data over 1999-2009; 3) district-level resident registration statistics; and 4) Census data for 2005. The method of this study is panel time-series analysis. Having any FIN increases the crude rate of 2nd-order births by 2.92% (p<0.01) and 3rd-order births by 8.45% (p<0.01). A FIN of one million Korean Won (US$887) is significantly associated with a 3.0% (p<0.01) increase in crude rate of second or higher order births, and is also associated with 2.3% (p<0.01) increase in crude rate of third or higher order births. This study suggests that FIN programs for the birth registration was effective in encouraging parents who have a second or more child.