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The Contribution Of Health To Economic Expansion Economics Essay

The linkage between health and financial activity has been debated many times before, and this issue became even more important in the last couple of years. This relationship is quite complex. It has been already accepted that increased countrywide wealth is associated with improvement of health at individual and societal level. Furthermore, it is clear that upgraded health condition impacts financial activity and extent of economic expansion. Several studies in high-, midsection-, and low-income countries reviewed this linkage. These show that a significant switch in paradigm is observable. Based on the new paradigm health had not been considered as a natural by-product of economical development, but as a key factor and basic condition for economical growth. This way buying health became a primary part in many countries' development strategies and procedures. At European level the aim of a competitive and strong knowledge based mostly community was place, enabling sustainable monetary growth, invention and a stronger societal cohesion.

The issue of contribution of real human capital to economic growth was the basis for several discussions and analyses. Until now education was regarded as the main component of human capital. In the context of the neo-classical theory, economic growth is dependent on the next factors: stock of capital, stock of labor and productivity. Efficiency was considered in the first time as one factor affected by outside forces. Down the road this point of view evolved by looking at the investment into individuals capital just as one source for boosting productivity and technology. A research of Becker (1964) was based on the human being capital formation. Matching to him a rise in individual capital raises the individual's output. It is come to through investment into education, training and health.

The role of health as another important component of real human capital next to education was released by Grossman (1972). Grossman designed a model where in fact the demand for health was applied in real human capital theory. Grossman differentiated health as a usage good so that as a capital good. Regarding the consumption good people basically enjoy their well-being and good health. When looking at health as a capital good it reduces the number of days spent ill. This way it enhances the number of productive business days and days put in for leisure activities. In this context health is not only consumed (savored by individuals), but produced at the same time as well. Individuals can make investments into health to keep and improve it over time. The model of Grossman received critics as well, but remained a key model of evaluating the demand for health.

Figure 1: Factors influencing health insurance and outcomes

Source: http://europa. eu. int/comm/health/ph_determinants/healthdeterminants_en. htm

Figure 1 represents factors determining the health status at specific and at culture level, and different channels through which health contributes to economical activity. On the kept area factors are provided affecting health of people: genetics (inherited) lifestyle, education, healthcare and other socioeconomic and environmental factors. Many exogenous factors impacting the health position can be affected by public insurance policies. In the right side different ways are presented through which health exerts a direct effect on economic effects.

When analyzing the linkage between health and economic progress the reviews of income on health should be taken under consideration too. Marmot (2002) state governments there are two ways of by which income influences health condition. Similarly higher income can have a direct affect on materials conditions using a positive impact on biological survival. On the other hand higher income favorably influences social involvement. Thus, people have better conditions to manage life circumstances and improve the sense of security.

Based on Body 1 there are four main programs or mechanisms where in fact the effect of health on the market is discussed.

Labor productivity

People with a good health status can produce more within a precise time interval. Higher productivity is originating from better physical and mental health. Furthermore, people with increased physical and mental status can use technology more efficient and they're expected to become more adaptable too.

Labor supply

The direct effect of health on the labor resource is not clear in some cases. Good health condition reduces the amount of sick days put in, thus increasing the amount of productive business days. On this sense it affects decisions on labor supply as well, due to its effect on wages and expected lifetime. In the event when wages are linked to productivity a wholesome employee can produce more, thus improving wages and this way the labor source. On the other hand an improved health status allows higher lifetime cash flow increasing the chance of prior withdrawal from working. The conclusion can be attracted that these results derive from individual preferences. Predicated on this health can affect the economy in a similar way as health have an effect on individual preferences.


Based on the theory of human being capital more educated people can reach higher expectations in conditions of output and revenue. With a good health individuals can perform higher educational qualification contributing significantly to future productivity.

Capital Formation

The key point here is, if the ramifications of health at the micro level are efficiently appropriate at macro or country level, in conditions of GDP and development rate. The mentioned theoretical models already assumed that there must be a positive relationship. Now examining several empirical studies the necessary proof can be accumulated to make more appropriate judgment regarding this romance.

In first line, historical studies added significantly to the study of this issue. Robert Fogel was considered as the pioneer of the historical analysis way. These studies examined the contribution of health to financial growth over a longer time period (1-2 centuries). Fogel (1994) discovered that the development in health and nourishment resulted a 30% increase in income and 1. 15% per capita regarding the united kingdom, within two centuries.

Researchers paid less focus on the contribution of health to financial growth regarding high-income countries. Just a few studies were made determining the impact of health on expansion specifically. A few of them found a good negative relation between health insurance and monetary improvement, but this was mainly due to the utilization of imperfect health indications and the institutional insurance plan framework for these countries. Regardless of the few negative results health still remained as a sturdy determinant for monetary growth. The mostly used proxies for health are life expectancy and adult mortality. Knowles and Owen (1997) made a study on 22 high-income countries using life expectancy as a proxy for health insurance and found an insignificant marriage between health and economic growth. The results were tweaked by Tompa (2002), where he stated that the insignificant final result of the study was credited to limited variability of life expectancy within the chosen test of countries. More significant results were attained by Beraldo et al. (2005). He discovered that investments in health end result a 16-27% upsurge in growth rates. The task by Suhrcke and Urban (2005) followed a marginally different way by using other indicators. They used non-communicable diseases as a basis to examine the impact of health on expansion in high-income countries in an improved way. More specifically, coronary disease (CVD) was used as a proxy for health. 26 high income countries were taken as an example in the time period of 40 years. Results proved that CVD is a powerful indicator regarding high-income countries. A reduction of ten percent10 % in CVD resulted a rise in the progress rate of per capita GDP by 1 percentage point.

The results of empirical studies show that only appropriate factors permit the accurate examination of the partnership between health insurance and economic growth. The very best indicators are life span and mortality rate, but additionally CVD is good as well, because it shows more variability among high-income countries than life span will. Furthermore, mental sickness and other morbidity signals for rich countries are recommended by Tompa (2002).

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