Research Article: Health and economic growth: Evidence from dynamic panel data of 143 years

Date Published: October 17, 2018

Publisher: Public Library of Science

Author(s): Rajesh Sharma, Wu Zeng.

http://doi.org/10.1371/journal.pone.0204940

Abstract

This paper re-examines health-growth relationship using an unbalanced panel of 17 advanced economies for the period 1870–2013 and employs panel generalised method of moments estimator that takes care of endogeneity issues, which arise due to reverse causality. We utilise macroeconomic data corresponding to inflation, government expenditure, trade and schooling in sample countries that takes care of omitted variable bias in growth regression. With alternate model specifications, we show that population health proxied by life expectancy exert a positive and significant effect on both real income per capita as well as growth. Our results are in conformity with the existing empirical evidence on the relationship between health and economic growth, they, however, are more robust due to the presence of long-term data, appropriate econometric procedure and alternate model specifications. We also show a strong role of endogeneity in driving standard results in growth empirics. In addition to life expectancy, other constituent of human capital, education proxied by schooling is also positively associated with real per capita income. Policy implication that follows from this paper is that per capita income can be boosted through focussed policy attention on population health. The results, however, posit differing policy implications for advanced and developing economies.

Partial Text

Researchers and policymakers strive hard to identify factors that influence economic growth to aid policymaking and implementation. Human capital made inroads into growth framework following endogenous growth revolution and is identified as one of the most important contributors to economic growth [1–3]. Recently, there are more evidences to the positive effect of health and healthcare investments in economic growth [4–5] and the importance of human capital for economic growth is re-emphasised by the World Bank [6–7]. Health and education are the most important constituents of human capital. Focussing on health, Fig 1A and 1B illustrates that rich countries are healthier when compared to poor countries, which gives rise to a question: whether rich countries are healthier because they are rich, or they are rich because they are healthier?

Through alternate model specifications and econometric procedures, we found that life expectancy has positive and statistically significant effect on per capita income as well its growth. Our regression results also indicate a strong role of endogeneity in driving standard results in growth empirics [15]. What are the policy implications going forward and what developing countries can learn from the experience of developed countries? Our results implicate a scope of boosting economic growth through focussed policy attention on population health by increased investments in healthcare systems. Secondly, as shown in Fig 1, there is very strong correlation between life expectancy and other indicators of population health which implies that till the time we get a better summary indicator of population health for which data is available for longer periods, a focus on boosting longevity seems to be an optimal strategy. From S2 Table, we notice that life expectancy ranges from the lows of 50.2 and 52.4 in Sierra Leone and Angola, respectively, to 83.4 and 83.7 in Switzerland and Japan, respectively in 2015. Such low levels of life expectancy imply high child mortality, lower adult survival rate and high prevalence of disease burden in working age-group which implies a significant loss to human capital which significantly impairs its contribution to economic production. Moreover, low levels of life expectancy lead to higher fertility and consequent population growth leading to further thinning of existing resources per capita. Therefore, developing countries have a scope to boost their income levels by focussing on population health. This raises a question: how to boost population health? What are the challenges to healthcare systems in advanced economies and low-resource economies? In terms of boosting longevity, reduction in child mortality has played a crucial role in the past [36] and is expected to provide further gains in future for low- and low-middle income economies. Moreover, many of the diseases that account for premature deaths as well as a cause of morbidity are preventable as well as treatable with available low-cost interventions [37]. For instance, 19.5 million children under the age 1 did not receive the three recommended doses of Diphtheria, Tetanus and Pertussis (DTP3) in 2016, and 20.8 million children below the age 1 didn’t receive a single dose of measles-containing vaccine [38]. Lastly, if we compare general government expenditure on health (Table 8) it is found to be significantly lower in poor economies. Moreover, in the light of stagnating development assistance for health (DAH) to poor economies, there is going to be significant pressure on already constrained public resources in poor economies [39].

Sustainable Development Goal 3 seeks to ensure healthy lives and promote well-being for all at all ages. In this paper, we investigate whether population health has causal effect on per capita income and its growth or not, using an unbalanced panel of 17 advanced economies for the period 1870–2013. We use life expectancy at birth as a proxy for population health and control for endogeneity issues using panel generalised method of moments (GMM) technique [16–18]. With alternate model specifications, we demonstrated that population health has positive and significant effect on both real income per capita as well as its growth. In addition to life expectancy, other constituent of human capital, schooling is also positively associated with per capita income. Investment has positive effect on growth which is consistent with the findings of existing literature. Government expenditure, however, has either statistically insignificant (p>0.1) or positive effect on per capita income and growth which seems to be at odds with the hypothesis of crowding out effect of government expenditure on real investments and hence, must exerts negative effect on growth. Our results may be driven by the positive effect of government expenditure during great depression and recessionary times as the data-set employed in this study contains many of the recessionary episodes. This observation cannot be generalised, however, and the dynamics of government’s size and its implications on real investments and growth demand rigorous empirical scrutiny by focussing on specific components of government expenditure. Inflation exerts negative and statistically significant influence on both per capita income and its growth and seems to be consistent with the existing literature [44]. Regarding population health, our results are consistent with previous results. Our results, however, seem to be more robust as these are based on 143 years of data, appropriate econometric specification and controlling for majority of macroeconomic determinants of growth. The probable channels through which life expectancy is envisaged to foster growth is through capital accumulation and boosting productivity of existing capital. In general, improved life expectancy leads to elongation of number of working years, also evident from worldwide debates on increasing the age of retirement. Second, majority of gains in life expectancy can be attributed to reductions in child as well as adult mortality; providing for greater number of working years and hence higher level of savings (and investments), which further propels the economic growth. This longevity-saving-growth channel has been identified as a source of East Asian growth miracle [45–46]. Health itself is not only a part of human capital but also contributes to human capita such as education [47]. Improved health (measured using life expectancy) allows the working population to be more productive in terms of new ideas and innovations. This further leads to enhanced productivity of the physical capital when employed by more skilful managers in the economy. Subsequently, longer living population invest more in human capital such as education as it expects to live greater number of years [48] leading to a virtuous cycle of improved productivity and economic growth. The empirical investigation of channels through which population health affects per capita income and growth may be an important agenda for future research.

 

Source:

http://doi.org/10.1371/journal.pone.0204940

 

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