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Why Investing In Health Is Important For Achieving Economic Growth?

1861 words - 8 pages

Contrary to the well recognized and studied causality running from economic growth to health, this study will present evidence of the reverse causation - from health to economic growth. The processes and connections that trigger the relationship between investment in health and the achievement of economic growth will be observed. The study will go through a review and an analysis of the effects that health investment has on economic growth and the economic rationale for investing in health. There are going to be some analysis and studies of the contribution of health to wealth and societal well-being, how better health serves as a predictor of economic growth and the degree to which economic ...view middle of the document...

Health problems prevent people from performing their daily activities and are reflected as obstacles in the development of individual’s potential during their entire lives.
In individual context, health is seen as a predictor for personal and economic development of everyone that possesses it. It is considered as basic factor in worker’s productivity and individual’s capacity to learn and grow intellectually. In economic context, health and education are the foundations of human capital, which is the basis of an individual’s economic productivity. (Shultz Th. , Becker G., 2001)
The macroeconomic evidence confirms that countries with the weakest conditions of health and education have a much harder time achieving sustained growth than do countries with better conditions of health . Therefore, investment in health is an important strategic action for poverty reduction and a contributor to the general well-being of the population, leading to higher levels of economic growth in the long run.
This paper will study the causality from health investment to economic growth. The following sections will provide a review of the literature in this topic, evidence of the causality from health investment to economic growth, a regression of GDP per capita in Albania run on health expenditure per capita over the period 1995-2011, in order to study how GDP per capita varies with changes in health expenditure per capita. At the end, a brief conclusion of the research is summarized.
2. Literature Review
One of the main issues in the field of health economics is to establish the direction of the causality between health and income. An informal explanation of this causality is: “a lot of people who otherwise wouldn’t be poor are, simply because they are sick; however, few people who otherwise would be healthy are sick because they are poor” . (Harold Luft, 1978)
There are several benefits that result from good health. Good health can enhance educational outcomes, both through school attendance and performance (Bloom and Canning, 2000; Schultz, 1999; Baldacci et al., 2004). Investing in health can improve individual productivity; healthy individuals are more likely to be efficient at assimilating knowledge, have stronger mental and physical capabilities and, in consequence, obtain higher productivity levels, and hence higher incomes. (Strauss and Thomas, 1998). Healthy populations tend to have higher productivity due to their greater physical energy and mental clearness. (Bloom and Canning, 2000). There is a general agreement among authors that better health can increase labor supply and productivity, ultimately leading to an increase in income. (Muysken, Yetkiner, and Ziesemer, 2003).
In the analysis of the impact of health on economic growth, Sorkin (1977) concluded that health, seen through reductions in mortality, had an important impact on economic growth during the early twentieth century.
The relation between health expenditures and gross domestic product was...

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