|
Article Excerpt
Abstract
The aim of this paper is to analyze the effect of health investment on productivity as an important variable associated with human capital accumulation. The authors also study the possible existence of endogeneity by using instrumental variables estimation. The results that are obtained may be interpreted as evidence of the positive impact of health expenditure on income growth. Furthermore, the authors looked at the bounded gains of health status and divided the sample according to the median of total health expenditure and found that the countries with lower levels of health spending obtain larger benefits when the other determinants of growth are held constant. (JEL N10, J24, I10)
Introduction
Education in the form of human capital accumulation has been highlighted as indispensable for increased labor quality and economic growth [Barro, 1991, pp. 407-43, Kyriacou, 1991, pp. 1-35, Benhabib and Spiegel, 1994, pp. 143-73, Mankiw et al., 1992, pp. 407-37]. In this sense, economic development depends on the level of skills acquired by the population and capital formation. In most empirical studies, education is the only factor worthy of consideration. Nevertheless, the health factor can be incorporated into growth models easily when the models are viewed within the context of human capital and allow for the enhanced productivity generated by labor capacity. Improvements in health increase a labor force's productivity, reducing incapacity and debility and raising work capacity over the life cycle. The most obvious gains are fewer days off work due to illness, increased productivity, greater opportunities to obtain better-paying jobs, and longer working lives. Moreover, health investment aimed at the aged contributes to reducing external effects, internalizing negative externalities in the labor force that arise from personalized health care and higher costs of treatment as longevity increases.
The aim of this paper is to analyze the effects of health investment on productivity as an important variable associated with human capital accumulation. In this sense, education is not the only important factor affecting the performance of the labor force and productivity. Human capital may, in a broad sense, be considered to encompass education and health. Without a labor force with the minimum levels of education and health, a country would not be able to maintain a state of continuous growth.
There are several studies showing the relationship between health and income in developing countries [Basta et al., 1979, pp. 916-25, Bhargava, 1997, pp. 277-95]. Developed countries are analyzed in this paper because of the interest of examining the effect of greater human capital levels on productivity and growth for those countries with high levels of welfare and per capita income. Developed economies have reached higher health levels, which presuppose quite different objectives and achievements from those of developing countries. In analyzing long periods, the authors can obtain estimates of important gains ranging from lower levels of health status to higher levels even in developed economies. Such an analysis demonstrates the importance of adult health in explaining variations in productivity.
The authors also analyze the existence of a feedback effect between health and income. If the causal relationship between health and income runs in both directions, the ordinary estimations would yield biased and inconsistent estimates of the structural parameters. The study of the relationship between per capita health spending and per capita Gross Domestic Product (GDP) has been attracting the interest of health economists who have been making comparisons between the health expenditure of different countries and what determines this expenditure. A number of recent works have focused on this relationship and have produced modifications to the initial methodology proposed by Newhouse [1977, pp. 115-25]. These studies have given rise to new results which have shown that there are strong links between per capita health spending and per capita GDP.
The following section briefly presents the relationship among health status, health indicators, and health expenditure. Next, the authors examine the impact of health on income in Organization of Economic Cooperation and Development (OECD) countries by running a log-linear equation derived from the augmented Solow model, which also considers health. Instrumental variables will then be used to analyze the existence of endogeneity in order to identify the links between health and income growth. The authors will conclude with the main findings of the study and their interpretation.
Health Status and Health Expenditure
The health status of the population depends on accumulative variables, such as human behavior, and environmental and economic factors, such as expenditure on the health system. Measuring the health status of a population poses weighty problems, since an extensive comparative health status index across countries does not exist. A factor which might condition the differences that exist between the results is the variables which have been used to measure health levels. Although the authors can define health more broadly to include indicators of physical and mental health, the most common indicators used are life expectancy and mortality rates.
The authors use health expenditure as a proxy for health status for specific reasons. According to Parkin et al. [1987, pp. 122-4], mortality rates represent a very limited and partial indicator with respect to the output of health care systems. Particularly, medical care is aimed neither exclusively nor primarily at illnesses where there is a high probability of death. Schaller and Carroll [1976, pp. 45-67] concluded that there was no correlation...
|
