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

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.

Fig 1. Relation between income per capita and indicators of population health.

a) LogGDP vs Life Expectancy b) LogGDP vs U5MR. The data pertains to 193 countries for 2015 and is procured from World Development Indicators (WDI) database of World Bank. LE: Life Expectancy at birth (in years). U5MR: Under-five mortality rate is the probability per 1,000 that a new-born child will die before reaching age five, if subject to age-specific mortality rates of the specified year. LogGDP: Natural Logarithm of real GDP per capita at constant 2010 USD.

Fig 2. Relationship between life expectancy and other indicators of population health.

a) LE vs HALE b) LE vs AMR c) LE vs U5MR. LE: Life Expectancy at birth (in years), HALE: Healthy Life Expectancy (at birth), AMR: Adult Mortality Rate (per 1000 population) and U5MR: Under-5 mortality Rate (per 1000 livebirths). The data pertains to 183 countries in 2015 and is procured from WHO mortality and global health estimates database.

Fig 3. Relationship between average life expectancy and per capita income, growth.

a) Scatter plot between LogGDP and Life Expectancy b) Scatter plot between Growth and Life Expectancy. LogGDP is the natural logarithm of real per capita income (at PPP prices). Growth: Growth rate of real per capita income calculated as difference of natural logarithm of real per capita income. Life Expectancy: Life Expectancy at Birth (in years). The data presented here is ten-year averaged.

Fig 4. Movement of life expectancy and per capita income: By sample country.

The Data pertains to 17 advanced economies in the sample. LogGDP: Natural logarithm of per capita GDP (at PPP prices).

Fig 5. Relationship between income, life expectancy and OOP.

a) Scatter plot between LogGDP and OOP b) Scatter plot between LE and OOP. The data pertains to 193 countries and is procured from World Development Indicators (WDI) database of World Bank. LogGDP: Natural Logarithm of real GDP per capita at constant 2010 USD. LE: Life Expectancy at Birth. OOP: Out-of-pocket expenditure as percentage of current health expenditure (CHE). Data of all variables pertains to 2015 and is procured from World Development Indicators (WDI) database of World Bank.