Wednesday, March 22, 2006

Health And Economic Growth

by Edward Hugh

Xavi Sala i Martin concudes in his paper on growth research - "15 Years of Growth Economics: What Have we Learnt?" - had the following to say on growth and health:

"The relation between most measures of human capital and economic growth is weak. Some measures of health, however, (such as life expectancy) are robustly correlated with growth"

Now this is a topic Xavi knows something about, since, as he says in one of his papers, "I Just Ran Two Million Regressions". In other words he knows that of which he speaks, these findings are robust (and possibly the only really robust outcome of that whole generation of growth research), and health and life expectancy *do* correlate with growth.

So this paper by Marcella Alsan, David Bloom and David Canning - The Effect of Population Health on Foreign Direct Investment - seems to be directly to the point.

Foreign direct investment (FDI) is increasingly viewed as a way to reduce poverty and spur economic growth among developing countries. It provides not only employment and financial capital, but also a means of transferring technology and skills, and increasing access to global markets. Yet poorer countries are relatively less successful at attracting FDI than their wealthier counterparts. This observation, coupled with the disparate health indicators between industrial and developing countries, prompted Marcella Alsan, David Bloom, and David Canning to investigate The Effect of Population Health on Foreign Direct Investment (NBER Working Paper No. 10596). The authors analyze data from 74 countries, industrial and developing, over 1980 to 2000, to determine whether health influences FDI flows. They find that good population health -- measured by average life expectancy -- has the extra merit of attracting more FDI.

Health, the authors note, is an integral component of human capital that enhances economic performance and productivity for the individual and thereby for the nation as a whole. Healthy workers are generally more physically and mentally robust than those afflicted with disease or disability. They are less likely to be absent from work because of personal or household illness. Healthier children tend to learn more easily and are less likely to be absent from school. Thus, they become better educated, higher earning adults. Healthier workers, with lower rates of absenteeism and longer life expectancies, acquire more job experience.

You can find the paper here (but it is subscription to the NBER only). This IMF paper which is feely available is also very much to the point:

Bloom, David E, David Canning, and Dean T. Jamison, Health, Wealth, and Welfare, IMF publications, Finance & Development March 2004.

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