Health, Wealth, and Welfare

• Author: David E. Bloom/David Canning/Dean T. Jamison
• Position: Professor of Economics and Demography and Chair/Professor of Economics and International Health,/Professor of International Health Economics and of Education at the University of California
• Pages: 10-15

New evidence coupled with a wider perspective suggest sizable economic returns to better health

Page 10

The last 150 years has witnessed a global transformation in human health that has led to people living longer, healthier, more productive lives. While having profound consequences for population size and structure, better health has also boosted rates of economic growth worldwide. Between the 16th century and the mid-19th century, average life expectancy around the world fluctuated but averaged under 40 years, with no upward trend. Life spans slowly but steadily increased in the second half of the 19th century and then jumped markedly in the 20th century, initially in Europe and then in the rest of the world (see table). Economic historians and demographers still debate the genesis of these changes, but they increasingly point to rising incomes (and resulting improvements in sanitation and food availability) as the major cause of declines in 19th-century mortality rates. For the 20th century, however, they believe technical improvements were the catalysts- particularly the discovery of the germ theory of disease, a better understanding of hygiene, and the development of antibiotics and vaccines.

Chile provides a well-documented example of dramatic mortality decline. A Chilean female born in 1910 had a life span of 33 years. Today, her life expectancy exceeds 78 (only 2 years shorter than that in the United States). In 1910, the odds were more than one in three that she would die before age 5; today, they are less than one in fifty. Moreover, for middle-aged people, death rates are also now far lower: today's Chilean female is far less likely to die as a young adult from tuberculosis or childbearing or in middle age from cancer. Mirroring these mortality changes are marked changes in her quality of life. She can choose to have fewer pregnancies and spend less time raising children: from an average of 5.3 children in 1950, Chilean women's fertility has dropped to 2.3 (barely above replacement). She suffers fewer infections and has greater strength and stature and a quicker mind. Her life is not only much longer, it is much healthier as well.

Living longer

Life expectancy rose sharply around the world in the second half of the 20th century, but AIDS is undermining progress in Africa and elsewhere.

[ SEE THE GRAPHIC AT THE ATTACHED PDF ]

What has this improvement in population health since the mid-19th century meant for economies as a whole? And what does the recent fall in life expectancy in Africa and elsewhere as a result of the HIV/AIDS epidemic portend? This article tries to answer these questions by exploring the increasingly strong body of evidence showing that better health contributes to the more rapid growth of GDP per capita. The article also delves into recent studies that argue that past estimates of economic progress have been understated and that recent economic losses caused by HIV/AIDS are likewise being understated if economists rely on GDP per capita as a yardstick. A better indicator would be "full income," a concept that captures the value of changes inPage 11 occurred in much of West Africa prior to the successful control of river blindness. Yet another channel is through boosting education. Healthier children have higher rates of school attendance and improved cognitive development, and a longer life span can make investment in education more attractive.

The initial beneficiaries of health improvements are often the most vulnerable group: children. Lower infant mortality initially creates a "baby boom" cohort and often leads to a subsequent reduction in the birth rate as families choose to have fewer children in the new low-mortality regime. A baby-boom cohort is thus unique and affects the economy profoundly as it enters education, then finds jobs, saves for retirement, and, finally, leaves the labor market. The cohorts before and after a baby boom are much smaller.

If better health improves an economy's productive potential, we would expect good health to go hand in hand with higher steady-state output. However, there may be a lag such that life expectancy by including them in an assessment of economic welfare. For Africa, this new yardstick sharply illuminates the economic consequences of AIDS in the past 15 years and signals catastrophe ahead.

Chart 1

Health's links to GDP

Poor health reduces GDP per capita by reducing both labor productivity and the relative size of the labor force.

[ SEE THE GRAPHIC AT THE ATTACHED PDF ]

How health affects GDP per capita

How does health influence GDP per capita? To begin with, healthy workers are more productive than workers who are otherwise comparable but for their health. One strand of supporting evidence comes from studies on individuals that link investments in health and nutrition of the young to adult wages.

Better health also raises per capita income through a number of other channels (see Chart 1). One way is by altering decisions about expenditures and savings over the life cycle. The idea of planning for retirement occurs only when mortality rates become low enough for retirement to be a realistic prospect. Rising longevity in developing countries has opened a new incentive for the current generation to save-an incentive that can have dramatic effects on national saving rates. While this saving boom lasts for only one generation and is offset by the needs of the elderly once population aging occurs, it can substantially boost investment and economic growth rates while it lasts. Another channel is by encouraging foreign direct investment: investors shun environments where the labor force suffers a heavy disease burden. Endemic diseases can also deny humans access to land or other natural...