Macro-Health Pathways

Linkages between Health, Nutrition, Labour force and Economic Growth

6/23/2021 Allen P Ugargol HE:TPFM Lecture 2 1

 Agenda
• Report of the Commission on Macroeconomics and
Health: Investing in Health for Economic Development
• Health & Economic Growth: Bloom et al, 2018

• Health Expenditures
• Linkage between Poverty and Health
• Linkage between Health and Education
• Linkage between Health and Labor Outcomes
• HEG across Developed / Developing Countries
 Intent

…let me say that I hope we keep our voice clear and strong on the central task of raising the
health of the poor. I can be ‘realistic’ and ‘cynical’ with the best of them—giving all the
reasons why things are too hard to change. We must dream a bit, not beyond the feasible
but to the limits of the feasible, so that we inspire. I think that we are an important voice
speaking on behalf of the world’s most voiceless people today—the sick and dying among
the poorest of the poor. The stakes are high. Let’s therefore speak boldly so that we can feel
confident that we have fulfilled our task as well as possible.”

• - Professor Jeffrey D. Sachs, 2001

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 Key Findings of the Commission
• Linkage's b/w Health and Development:
Health is a priority goal in its own right, as well as a central input into economic
development and poverty reduction

Few health conditions are responsible for a high proportion of the health deficit (HIV/AIDS,
malaria, TB, vaccine-preventable childhood infectious diseases, MCH, habits, micronutrient
deficiencies, etc.
The HIV/AIDS pandemic is a distinct and unparalleled catastrophe

Investments in reproductive health, including family planning and access to contraceptives

are crucial investments in disease control

The level of health spending in the low-income countries is insufficient to address the
health challenges they face

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 Findings continued…
Poor countries can increase the domestic resources that they mobilize for the
health sector and use those resources more efficiently

Donor finance will be needed to close the financing gap, in conjunction with best
efforts by the recipient countries themselves (GFATM)

Increased health coverage of the poor would require greater financial investments
in specific health sector interventions & properly structured health delivery system

Improved collection and analysis of epidemiological data, surveillance of infectious

diseases, and focus on R&D

Coordinated actions by the pharmaceutical industry & governments of low-income

countries

Countries, donors, and international agencies are needed to fund for world’s low-
income countries - reliable access to essential medicines

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 Health expenditures
• As a percent of GDP both low and middle-income countries spend
about the same on health

• Similar priority on health care spending in the economy across

• Higher income countries spend 4 percentage points more of GDP on

health (around 10%)

❑ This shows the priorities are not so out of line, just that poorer
countries have smaller economies so in total spend less

❑ India – around 1.26% of GDP (2021) / Bangladesh 2.34%, Cuba

11%, USA 18%, China 6.64%
 Comparison of Health expenditures
• US spends per capita 70% (~$2,000) more than other high-income
countries.

• High income countries spent

– 103 times the amount that low-income countries and

– 26 times more than middle income countries.

• Notice that even upper middle-income countries spend 10 times less than
high income countries.

• Substantially, less total dollars per person goes to health.

 Health expenditures
• OOP:
More out-of-pocket in low-income countries as compared
to high-income countries.

• Share:
– Low income: 1% government, 4% private
– Middle income: 3% government, 3% private
– High Income: 6% government, 4% private

– As countries get richer they are more able and willing to

spend public resources on health care.

• Why is this so?

 Health indicators

Infant mortality rate (IMR) – deaths/1000 live births

• Used as an indicator of the health of the population

• Infants have less developed immune systems
• More likely to die from diseases in the environment

Nutrition

• Nutrition is a good measure of general susceptibility to health since it is

the underlying cause of many diseases
• Malnourished individuals - weaker immune system
• However, hard to find data on nutrition

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 Health indicators
Health indicators in developing countries fall short of developed
countries
– e.g., life expectancy at birth for females is:
❑ Low-income countries: 59 – 60 years

❑ Middle income countries: 70- 72 years

❑ High income countries: 81 years +

– The gap between the rich and poor has decreased over the years.
❑ e.g. In 2000, life expectancy at birth for women was 22 years
less in low income as compared to high income countries. In
1960 the difference was 28 years.
– Great improvements in access to clean water, hygiene, education
however still very high IMR in developing countries
 Nutrition indicators

Undernourishment Malnutrition
(% Pop) (% under 5)
Height/ Weight/
age age
Low 24.63 43.12 43.72
Income
Middle 9.51 27.06 11.11
Income
Source: World Development Indicators 2000, The World Bank.

Long-term measure Short-term

of nutrition measure of nutrition
 Health indicators
Differences in health outcomes between developed and
developing countries is important

In Developing Countries:
• Age distribution of ill health tilted toward infants and pre-
school children – policy tilt as well
• More communicable than non-communicable
• Adults more likely to be afflicted with health problems
❑ Result of poor health in fetal growth/ child (pre-term/LBW/Barkers
hypothesis?)

❑ Emerging health problems in adulthood & advanced ages

• Less healthcare support, hence catastrophic OOP can lead to
poverty
 Why worry about poor health

Link between
poverty
(income) and
health

Link between
health and Macroeconomic & Health
poverty
(Why invest in Health??)
Health
poverty
trap
Links between
health and
education

Links between
health and
labor
outcomes

6/23/2021 Allen P Ugargol 13

 Health & Economic Growth?

Hard to test these theories

Difficult to disentangle correlation and causation
1. Reverse causality
2. Omitted variable bias
Both of these are sometime referred to as endogeneity

1. Income Health Health Income

2. Health Education Outcomes or
Unobservable Parent Characteristics

Child Health Educational Outcomes

 Poverty affects health: Evidence
1. Poor cannot buy health care
– Cannot afford to prevent a disease before it occurs
(vaccinations)
– Doctor visit for diagnosis
– Drugs to treat the problem
– High end procedures
2. Poor more likely to be malnourished
– Can’t afford food or fertilizer to grow food
• Lack of food and variety
– Immune systems weak
• Susceptible to diseases
 Poverty affects health: Theory
3. Lack of income to buy drugs (pharmaceutical companies
might not invest in drug development for tropical diseases (i.e.
malaria)

4. Poor are more likely to live far away from doctors and
hospitals
– Transportation costs are large
– Poor and marginalized more likely to go untreated
– True for rural poor, may not be true for urban poor in all
countries
– Use mobile health clinics and foot doctors to reach the
poor in rural areas?
 Poverty affects health: Theory

5. Poor less likely to be educated

Studies indicate that more educated the mother (literacy),
healthier children
• Educated mother understands sanitation better (wash
hands using soap, drink clean water)
• Can read, so knows how to make and use ORT (Oral
Rehydration Therapy)
• Knows not to use rusty razor or scissors when cutting
umbilical cord—neonatal tetanus
• Can recognize signs of illness
 Health as human Capital

Co-movement of Health and Wealth

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 Human Capital

Human Capital:
– Economist Theodore Schultz invented the term in the 1960s to
reflect the value of our human capacities.
– He believed human capital was like any other type of capital.
– Could be invested in through education, training, and enhanced
benefits that will lead to an improvement in the quality and
level of production.
– Health and education are thought to be two of the most
important ways to improve one’s human capital.
 Health affects poverty: Theory

• Use an aggregate production function to help understand

the channels through which health affects poverty.
Y = AF(K,hL)
Y=output (GDP) ; A= efficiency parameter;
F( )=production function; K=physical capital;
L=quantity of labor; h=quality of labor or human capital
• GDP growth only occurs if there are increases in
efficiency (technology), level of physical capital, or
quality or quantity of labor.
 Health affects poverty
Y = AF(K,hL)

How we might affect h in the model

1. health improves ‘h’ by improving labor productivity
– Healthy can do more in the same amount of time
– If h is lower, people are more likely to have lower
incomes and experience lower income growth.
2. ‘h’ increases when education increases
– Health improves educational outcomes (more on this
later).
 Health affects poverty
3. Employers wudn’t want to support job training for sick
workers
– In HIV/AIDS prevalent areas, some companies prefer to give
training to the old than the young, because the young may
die.
4. Poor health in a region tends to lead to lower human capital
accumulation and hence lower incomes
– Quantity-Quality Trade-Off
Parents living in areas where child mortality rates are high
tend to have many children instead of having a few children
and investing in their human capital.
 Health affects poverty
Y = AF(K,hL)

Affecting K in the model:

1. Poor health reduces national savings and capital accumulation
– When life expectancy is close to retirement age people do not save
and invest as much as when people live long after retirement.
2. Complementarities between physical and human capital
– If human capital is needed to effectively use the physical capital, then
low human capital will lead to lower capital accumulation.
❑ Firms don’t want to invest in countries with an unhealthy, less
educated labor force.
 Health affects poverty
Effect on Aggregate Efficiency, A
1. Aggregate efficiency is affected by technological advances.
– Low human capital may lead to a lower rate of
technological advances
❑ This assumes more health people = more technical
advances
❑ May only need a core group
 Health affects poverty
2. Countries inherited these colonial institutions and their
problems. Believed that quality of institutions really affects
economic development
❑World Bank has spent the past decade on institution
building or capacity building

3. Health inequality leads to less social cohesion and larger

probability of unrest
– Social unrest, violence and fractionalization are
important determinants of economic growth.
 Health affect education
Mechanism through which health affects schooling:
1. Poor nutrition leads to poor brain development which
affects learning
2. Poor health leads to worse attendance and attention in
class
3. Parental death / school drop-outs? Child labour?
 Health and labor outcomes

• Better health may improve wages and labor productivity

(hours supplied/work done)
❑ Can work more hours and get more done during the same
amount of hours when healthier
❑ Better health as a child leads to improved cognitive ability
which can lead to better labor market outcomes in the
future
 Health and labor outcomes evidence

• Taller people earn more and are more likely to participate in the labor
market

❑ Height reflects investments in nutrition and health as a child (human

capital)

❑ Robert Fogel (1992,1994) argues that movements in adult height

reflect long-run changes in standards of living (income, mortality,
morbidity).

❑ Correlation between height and wages.

 More evidence …
• Moradi measured health using height of women in a sample of Sub-Saharan
African (SSA) countries
• Trend in height declining only in SSA
• Trends best explained by economic growth’s impacts at two time points:
early and late childhood
• Deviations in height were largest from the norm for cohorts in these age
groups when economic growth declined
• These have cumulative effects over a lifetime indicating malnutrition
• Evidence of : ↓ y → ↓ h
Source: Moradi, A., and J. Baten. (2005) "Inequality in Sub-Saharan Africa 1950-80: New Estimates
and New Results." World Development 33(8):1233-1265.

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 Health and labor outcomes
Evidence continued
• Using different health measures

(morbidities, ADLs, health limitations)

❑ ADLs = Activities of daily living

• Can you walk 5 km without getting tired

• Can you lift a 2-kg weight

• Days of limited activity

❑ Poor health reduces labor supply

❑ Evidence of poor health on wages and productivity is mixed.

 Health and labor outcomes

• Lot of evidence to suggest that better nutrition leads to better health

outcomes

• Low nutrition intakes impacts productivity negatively

❑ Not just the calories or protein you eat it is also the quality of the
calories. Need micro-nutrients, e.g., iron and vitamin A for the brain
to function properly.

❑ Policy implication is iron fortification of flour and fortifying milk

with vitamin A.
 Some insights …

Enormous Large differences Strong Some theorizing:

differences in per in calorific intake correlation:
capita GDP
Between calorific
consumption and income
Between life expectancy
and income
Wealth leads to better
health AND
Health leads to better
wealth simultaneously

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 A Two Sector Model

Larger flow of G & S

Economic
Sector
Boosting
Purchase Health Economic
G&S Reduces funds for Increases Performance
economic activity employment
& income
Healthcare Population
Financing (input) Health (output)
Changes
disease
burden

?1 ?2
Health
Sector

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 ?2 …

Determinants of mortality Improvement in health leads to a jump

in the health production function …
Improved nutrition, economic growth and
public health (vaccinations and simple
treatments) over earlier centuries

Knowledge (germ theory of diseases,

effects of smoking, etc.)

Science and Technology (better clinical and

practice related improvements, better
pharma, patient tracking triangulation, etc.)

Allen P Ugargol
 THE WHO Universal Health Coverage Tool

Strategic Choices

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 Visualizing Health Policy
Depth—How Much
of Cost Is Covered Breadth—What is Covered

Extent—Who is Covered

Copyright 2012 Marc J. Roberts 36

 Size of Coverage “Steps”
Depth- How Much of Breadth -
Cost is Covered Services
covered

Individuals
Covered
Copyright 2012 Marc J. Roberts 37
 Group A: High Cover for most service
Depth - How Much is Covered Breadth - Services
covered

Group A

Individuals
Covered
38
 Group B: Some Outpatient, Low Inpatient
Depth - How Much is Covered Breadth - Services
covered

Group B
Individuals
Covered
Copyright 2012 Marc J. Roberts 39
 Group C: Limited Cover for some
Depth - How Much is Covered Breadth - Services
covered

Group C Individuals
Covered
Copyright 2012 Marc J. Roberts 40
 An alternative health system

6/23/2021 Copyright 2012 Marc J. Roberts 41

 In 2005…

The Commission on Macroeconomics

Good time to ask
and Health Estimated for India

Per Capita Health Expenditure should be What system should we go for if we had
35-40 USD that political committment?
In 2005

▪ Government expenditure was USD 5

• Private expenditure was USD 15
• Shortfall of about 1% of GDP –
bridgeable!

6/23/2021 Allen P Ugargol HE:TPFM Lecture 2 42

 Summary

Health and Income The pattern of flow of

jointly co-move over Investments in Health funds and goods and
time in a complex have a Multiplier effect services defines health
manner systems

The pattern of flow of Expenditure on the

funds affects savings health system
and consumption of generates health
individuals and the outcomes – the
country production function

6/23/2021 Allen P Ugargol HE:TPFM Lecture 2 43

 Problems

Nature of the relationship

Depends on the dimension of health examined (e.g.,

morbidity vs. mortality) and the affected individual’s
age, gender, and socioeconomic status.

Difference between the economic effects of health

interventions in less developed countries and in
developed countries

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 Evidence

• Morbidity ↓ lead to ↑ labour supply & families ↑ educational

investment

• Mortality ↓ lead to ↑ labour supply & ↑ savings, investment in

physical capital & ↑ returns on educational investment
•
Interventions that ↑ children’s & women’s health → stronger
effects than investments

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 Demographic Transition

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 Role of Demographic Transition
• In general, childhood investments → + effects throughout life

• Investment on women → intergenerational spillover effects & ↓ fertility

• Pre-transition economies, greater longevity is not associated with greater

educational attainment or a reduction in the birth rate (↑ survival → ↑ net rate

of reproduction).

• In post-transition economies, greater longevity is associated with increases in

various measures of education and consequently reductions in fertility

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 The Channels by Which Health Affects Economic Growth in Less Developed Countries

• How health investments affect the possibility of escaping from a poverty trap sustained (or at
least reinforced) by poor health.

– Unified growth theory -“the big divergence” between well-developed and less developed
economies

– With living longer, human capital investments will pay off

– Healthier women more likely to participate in the formal labor market, face higher
opportunity costs of having children – hence fewer children

– Studies point to longevity’s positive impact on incentives to invest in education

– The crucial role of morbidity as opposed to mortality

– Demographic dividend

– How recurring epidemics can trap economies (Covid?)

– Even low-intensity health interventions can have strong + effects on the working-age
population’s health
6/23/2021 HE:TPFM Lecture 2 48
 The Channels by Which Health Affects Economic Growth in Developed Countries

• Health affects human capital accumulation, overall investment, and R&D-based

economic growth in developed countries
• health improvements are perceived to be an important component of economic
development in general
– longevity improvements in developed countries are concentrated among the
elderly
– expansions of longevity may lower the economic support ratio
– decline in per capita consumption levels
– productivity gains offset by elderly’s high medical costs, which therefore
impose a drag on economic growth
– the absorption of productive resources by “oversized” health-care sector and
medical progress may compromise economic performance
– impact of health as transmitted through changes in labor supply
– Hence problem of “flat-of-the-curve medicine,” with even high-intensity
treatments having little impact on the population’s health status

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 Lancet Global Health, 2018

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 Need?

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 General comments
• Income generating capacity of the poorest is enhanced more by some health
sector investments relative to others.

• Need to look at the how policies affect different groups and streamline policies,
so they are appropriate for each group.

• More emphasis on preventable diseases / primary care required in developing

countries, yet you’ll see a lot of money is put toward high tech cancer wards /
sophistication in some of these countries.

• If public investment in health infrastructure and interventions yields benefits in

terms of higher productivity and economic growth, then those benefits belong
in evaluations of health programs.