Health and Economic Growth

The "Economic Focus" tutorial in this week's Economist is on the interrelationship between health and economic development. It seems intuitively obvious that the healthier you are the more likely you are to be able to learn and work well, and thus good health should promote economic progress. It also seems intuitive that economic development leads to better nutrition, better sanitation, better hygiene, better health services, and thus better health. The article cites research which challenges that idea:

Beginning in the 1940s, several medical involving penicillin, streptomycin and DDT made it easier to treat diseases—such as tuberculosis, malaria and yellow fever—that disproportionately affected people in developing countries. Because these ideas originated in the rich world and were spread by organisations such as the WHO, any improvements in health they led to would have been unconnected with prior improvements in the economic circumstances of poor countries.

This international revolution in public health did lead to substantial increases in life expectancy in poor countries by the 1950s. However, the researchers found that income per head actually declined when life expectancy went up and did not recover for up to an astonishing 60 years.

The reason was that increased life expectancy led to a higher population using a limited stock of things like land and capital, thus depressing income per person. Over time, reduced fertility, more investment and the entrepreneurial benefits of having more people could reverse some of this, but the data suggested that reductions in fertility in particular took a long time.

Of course, the Human Development Index is a partial response to the recognition that increases in per capita GDP do not fully capture the improvements we seek through social and economic development. I think most people would gladly trade a little income for a longer, healthier life. Think about the increasing expenditures on health service with increased income!

The article also notes:

Some health improvements may not lead to a longer life, but may nonetheless make people more productive. Hookworm infection, whose eradication from the American South Mr Bleakley has studied, is a case in point. Getting rid of hookworm disease made children quicker learners in school, and increased their incomes when they started working. However, it did not increase life expectancy since the infection was not fatal and so did not lead to a rise in population, which could have prevented individual benefits from carrying over to the economy as a whole. Policies that improve health without affecting the length of life may well be the ones that have a bigger economic pay-off, and a focus on life expectancy may miss this.

Some of Mr Bleakley’s other work points in this direction. Studying the impact of the eradication of malaria in Colombia, he noted that parts of the country were affected by a species of the malarial parasite called Plasmodium vivax, which led to very poor health but was rarely fatal. The more lethal version, P. falciparum, affected other areas. He found that eliminating P. vivax led to significant gains in human capital and income; eliminating P. falciparum did not.

I am now retired. I know from personal experience that my needs for income are less now (at an age to which few could have aspired a century ago) than they were when I was younger. I am not paying to educate my son, and I am no longer saving for retirement. So one issue that might be considered is the need for income at different ages.

Think too about the demographic transition. Poor health, leading to high mortality rates, means people have lots of children most of whom don't survive to be adults to lead a long, economically productive life. Dependency ratios are high as the workers seek to support there many children. Lots of the investment in those children is "lost" when they die early, and yet the investment in the education of the surviving child is necessarily low.

Health economists have long realized that the productivity gains differ from different health interventions. Companies have long invested in preventive health services for their employees, recognizing that they can improve corporate profits. So too the impact of economic development on health is complicated by the fact that different forms of institutionalization of health services yield different health returns for the same health costs.

Complexity should not deter us from seeking to be "healthy, wealthy and wise".

Articles cited by The Economist article:

• “Disease and Development: The Effect of Life Expectancy on Economic Growth”.
• When Does Improving Health Raise GDP?” By Qamurul Ashraf, Ashley Lester and David Weil.
• "Comments on Acemoglu and Johnson (2006)”; and “Comments on Ashraf, Lester and Weil (2008)”.