Modeling the effects of health on economic growth

Abstract

This paper investigates the effects of health indicators such as adult survival rates (ASR) on GDP growth rates at 5-year intervals in several countries. Panel data were analyzed on GDP series based on purchasing power adjustments and on exchange rates. First, we developed a framework for modeling the inter-relationships between GDP growth rates and explanatory variables by re-examining the life expectancy-income relationship. Second, models for growth rates were estimated taking into account the interaction between ASR and lagged GDP level; issues of endogeneity and reverse causality were addressed. Lastly, we computed confidence intervals for the effect of ASR on growth rate and applied a test for parameter stability. The results showed positive effects of ASR on GDP growth rates in low-income countries.