Question

Describe in detail the reasons behind the two-way relationship between health and economic growth. Explain the factors for each side of the relationship between health and economic growth in detail in words. Please provide two factors for each side of the relationship, two that explain why better health results in higher economic growth and two factors of why higher economic growth can lead to better health.

Answer 1

Sol:

Human capital plays an important role in sustainable economic growth. The growth economists that have included human capital in the growth studies, paid more attention on analysing the impact of education on economic growth, while ignoring the role of health human capital.

There exists a two way relationship between health and economic growth. Health and other forms of human and physical capital increases the per capita GDP by increasing productivity of existing resources paired with resource accumulation and technical change. Also, some part of the increased income is spent on investment in human capital, which results in further per capita growth. Reportedly, approx. one third of GDP of Britain between 1790 and 1980 is the outcome of improvements in health linked to improvement in nutrition, medical care, etc.

Considering another perspective, economic development results in improved nutrition, better sanitation, innovations in medical technologies; all this increases the life expectancy and also reduces infant mortality rate.

Despite some remaining controversy, health improvements are perceived to be an important component of economic development in general and of the takeoff to sustained economic growth in particular. Much more skepticism surrounds the role of health as a driver of economic growth in developed economies. Indeed, many view the high costs of advanced health-care systems as having the potential to deter growth. The debate centers on two main concerns. First, given that longevity improvements in developed countries are concentrated among the elderly, further expansions of longevity may lower the economic support ratio (i.e., the ratio of effective labor supply to the dependent population) and thereby lead to a decline in per capita consumption levels. A related concern is that productivity gains insufficiently offset the elderly’s high medical costs, which therefore impose a drag on economic growth. Second, with health expenditure shares in many OECD countries approaching or past the 10% mark, the absorption of productive resources by “oversized” health-care sectors is feared to compromise economic performance.