Download Improvements of health and longevity are not simply viewed as a

HIGHER LIFE EXPECTANCY LEADS TO HIGHER GDP
Higher life expectancy leads to higher GDP, especially in low-income countries, where
a 1% rise in life expectancy increases GDP per capita by up to 5%. That is the central
finding of research by Muhammad Jami Husain, presented at the Royal Economic
Society’s 2010 annual conference.
Often health and longevity are viewed as end-products of economic development, with
some previous studies suggesting that the impact of greater life expectancy was more
on population and hardly at all on economic growth. But using the same modelling
techniques with different data and specifications, the author finds that higher life
expectancy actually increases GDP.
The author comments: ‘These findings support the notion of investing in health to
promote economic wellbeing. The adage ‘health is wealth’ is not merely an intuitive
proposition, but quantitatively justifiable.’
More…
Contentious policy views arise because of the uncertain, and probably complex, nature
of the association between health and income. Policies for better health, poverty
reduction and less inequality throughout the world require thorough understanding of
both the processes and causal paths that underlie the intricate relationship between
health and wealth (income).
The thrust of contemporary discussions on health reforms often sees interventions that
promote health and the delivery of health care as costs that need to be contained
(Suhrcke et al, 2005), implying that income is the main instrument and health outcomes
the end-points of development objectives.
But improvements in health and longevity are not simply viewed as a mere end- or byproduct of economic development but as one of the key determinants of economic
growth, and therefore providing the means to achieve economic development and
poverty reduction.
Until recently, the economic research literature has found evidence of a positive,
significant and sizable influence of life expectancy on economic growth. This view has
been challenged by Acemoglu and Johnson (2007), which provides an empirical
analysis based on the international epidemiological transition, apparently led by the
wave of international health innovations and improvements that began in the 1940s.
They show that changes in life expectancy have a large effect on population, but a
much smaller effect on total GDP both initially and over a 40-year horizon. Accordingly,
the impact of the increase in life expectancy on per capita income is insignificant or
negative. The political economy consequences of such a finding have critical
implications for health investments.
Using a similar modelling and estimation framework to Acemoglu and Johnson, this
paper presents alternative estimates on the impact of life expectancy on population,
GDP and GDP per capita by using alternative instruments, timeline and country groups.
The findings differ remarkably from those of Acemoglu and Johnson.
While the pattern of impact varies across country groups and instruments used, the
reported coefficients suggest positive impact of life expectancy on GDP per capita in a
large number of specifications. The impact of life expectancy on population in general is
relatively weaker or insignificant in many cases. The impact on total GDP is much
larger and significant in quite a few cases, with a correspondingly large positive impact
on per capita GDP.
This is particularly evident for the lower-income countries. All the estimated elasticity
values for the low-income countries are significant and show that a 1% increase in life
expectancy increases GDP per capita by as much as 5.28%.
This paper highlights the positive income effects generated by rising life expectancy,
and casts doubt on the pessimistic view with regards to the impact of life expectancy on
income per capita. The findings of the paper support the notion of investing in health to
promote economic wellbeing. The adage ‘health is wealth’ is not merely an intuitive
proposition, but quantitatively justifiable.
ENDS
‘Alternative Estimates of the Effect of the Increase of Life Expectancy on Economic
Growth’ by Muhammad Jami Husain, PhD candidate, Research Institute for Public
Policy and Management (IPPM), School of Economics, Keele University, and Tutor in
Economics, University of Wales Swansea
Contact during the conference: +44 (0) 7907 583208
Email: [email protected]; [email protected]; [email protected]