Essay On Health And Economic Growth

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Theoretical literature on the relation between health and economic growth suggests that there could be a two way relationship between them. Higher economic growth leads to higher investments in health, and therefore better health. On the other hand, better health is increasingly seen as a key tool in achieving higher economic growth.
The effect of economic growth on health is well known. The level of health expenditures depends on income or available resources in both private and public sectors. Higher income implies that there is more money available to be spent on health. Research in the field of health economics indicates that variations in health care expenditure per capita could be mostly explained by variations in GDP per capita (Gerdtham & Jonsson, 2000).
A theoretical basis does also exist for the reverse causation, from health expenditure to income and economic growth. The role of health care spending, as an investment, on stimulating economic growth has been suggested by Mushkin. According to him, health is considered as capital. Therefore, investment on health can increase income and hence lead to overall economic growth. (Mushkin, 1962). This is especially seen on low income or developing countries. The World Health Organization’s Commission on Macroeconomics and Health report of the year 2001, states that “extending the coverage of crucial health services to the world’s poor could save millions of lives each year, reduce poverty, spur economic development and promote global security” (World Health Organization, 2001).
Establishing the direction of the causality between health and income has become one of the main issues in the field of health economics. An informal explanation of this causality is: “a lot of people ...

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...elationship stops being binding. (Grossman, 1972)
Due to the problems associated with using life expectancy as a proxy variable for health, many authors use health expenditure as representative of health status. There are some specific reasons for this. According to the World Bank, the differences in health care spending among countries constitute a good starting point for explaining the differences in health levels across countries. (World Bank, 1993). In exploring the relationship between public health expenditure and health status, Rivera found that increases in public health expenditure significantly improve both physiological and physical health. (Rivera B. , 2001). Therefore, this study will use health expenditure per capita as a proxy for health and GDP per capita as a proxy for economic growth, in trying to identify the impact of health on economic growth.

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