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Fridays Academy: Health, Poverty Reduction and Economic Growth (II)

Ignacio Hernandez's picture

Like every Friday, from Raj Nallari and Breda Griffith's lecture notes on Economic Policies for Poverty Reduction.

 

The unacceptably high mortality rates in the least developed countries can be improved by the control of communicable diseases and enhancing maternal and child health. HIV/AIDS, malaria, tuberculosis (TB), childhood infectious diseases, maternal and prenatal conditions, micronutrient deficiencies and tobacco-related illnesses represent the main causes of (avoidable) deaths in low-income countries (CMH, 2001).  Widespread disease also stunts the exploitation of arable land, migration and trade. Bad health stymies job productivity and an individual’s ability to learn and to grow intellectually, physically and emotionally. Through all these channels, ill health pushes the poor deeper into poverty.  If disease was controlled so that individuals could reap longer and healthier lives, the pressure to have many children would abate and families could invest more in the health of each child. These improvements in health would in turn translate into higher incomes, higher economic growth and reduced (and more sustainable) population growth.

A healthy individual is more likely to be more productive than an unhealthy one. Better health increases per capita income through at least three channels. These are:

    • altering decisions about spending and saving over an individual’s life-cycle;
    • encouraging foreign direct investment; and
    • increasing the incentives for investing in education.

An individual is less likely to save for retirement when mortality rates are high. Falling mortality rates in many developing countries has opened up new incentives to save that impact dramatically, at least before populations begin to age, on national saving rates. The impetus from the national savings rates boosts investment rates and increases per capita income.  Foreign investors are more likely to shun environments in which the labor force suffers from a high disease burden. Whole industries in agriculture, mining, manufacturing and tourism suffer from a lack of investment when disease is prevalent. Moreover, infrastructure projects suffer from a lack of investment also in high disease environments. Furthermore, endemic disease, such as river blindness, prevents individuals from exploiting land and other natural resources. Reduced mortality rates also make investment in education more appealing, as healthier children have higher rates of school attendance and higher cognitive abilities.  A number of studies have shown the positive effect of health and nutrition on school attendance and cognitive ability (Balasz et al. (1986), Pollitt (1997, 2001), Bhargava (1997), Kremer and Miguel (1999)).      
 

Exhibit below examines the vicious cycle that can be set in motion when bad health leads to further impoverishment and further ill-health. Poor health reduces GDP per capita by reducing labor productivity from reduced investment in physical capital, reduced access to natural resources and the global economy and reduced schooling and impaired cognitive capacity.  GDP per capita is also lowered by a reduced labor force stemming from high mortality due to adult illness and malnutrition and early retirement.  The higher dependency ratio stemming from the reduced labor force and higher fertility and child mortality directly feeds into lower GDP per capita.  The HIV/AIDS epidemic in Sub-Saharan Africa has already begun to impact on higher levels of adult mortality.  The effect of HIV/AIDS on GDP per capita could eventually follow the pattern described by the exhibit below with consequent adverse effects for investment, education, and saving for retirement. 

 

Health’s Links to GDP

1

              Source:     Bloom, Canning and Jamison, 2005


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