Question

health economists have proposed at least 2 hypotheses explaining the rapid rise in health care expenditure. Name one hypothesis and illustrate with examples from the notes fore the health economics lecture carefully.

Answer 1

The importance of health care in stimulating economic growth first realised through endogenous growth models attributed the key role to Human capital in accelerating economic development. Since then, various hypothesises have been put forward by health care economists to link Health care expenditures to economic development. One such popular hypothesis is Health led growth hypothesis.

Health led Growth hypothesis
Put forward by Mushkin 1962, the hypothesis suggests a positive correlation between the healthcare expenditure and economic growth. Considering Health as a capital, raising health care expenditure would lead to increase in human capital that would help to bring about economic growth. It asserts that investment in health care of the population (working age) helps in increasing factor productivity. A healthier workforce is more productive, earns more and is receptive of new technology at a quicker pace. All these effects lead to human capital accumulation capable of giving momentum to growth.

As such one of the reasons for underdevelopment is considered to be poor health and low life expectancy of the population. In fact, 50% of divergence between developing and developed world in economic growth has been attributed to lack of importance of health care expenditure and inavailability of investment in health care.

However now, most developing nations are deciding to investment heavily on health care and thus raise health care expenditure for accumulation of human capital. One such example is Abuja Declaration wherein African nations pledged to allocate 15% of GDP to health care.