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David N. Weil. Accounting for the effect of health on economic growth (2007) Olga David N. Weil. Accounting for the effect of health on economic growth (2007) Olga Boldarieva, Nikolay Slobodchuk Mikhail Tirskikh New Economic School April, 2013

How does health affect output? Research question of the paper: to what extent health How does health affect output? Research question of the paper: to what extent health differences explain income differences between rich and poor countries? And what is the income gain that would result from improving health in poor countries? 1. Healthier people are better workers 2. With better health, there is more incentives for education 3. Improvements in mortality leads to higher savings April, 2013 New Economic School 2

Methodology • • • The problem of endogeneity => Can’t use aggregate data to Methodology • • • The problem of endogeneity => Can’t use aggregate data to determine the structural effect of health on income The author uses structural microeconomic estimates of the direct effect of health on individual income and aggregate data on health differences among countries April, 2013 New Economic School 3

Health measures 1. Inputs into health: nutrition, availability of medical care, etc. 2. Health Health measures 1. Inputs into health: nutrition, availability of medical care, etc. 2. Health outcomes: life expectancy, height, the ability to work hard, etc. April, 2013 New Economic School 4

Empirical framework X – a vector of inputs into individual health, I (indicator) – Empirical framework X – a vector of inputs into individual health, I (indicator) – any observable element of health outcomes, – health outcome that is relevant for labor productivity, z – latent measure of health. April, 2013 New Economic School 5

Ideal health indicator 1. Closely related to the aspects of individual health that are Ideal health indicator 1. Closely related to the aspects of individual health that are relevant for labor productivity 2. Structural estimates of the return to this health characteristic do exist 3. Data on this indicator are available for a broad cross section of countries April, 2013 New Economic School 6

Health indicator: Adult height • Good indicator of the health environment in which a Health indicator: Adult height • Good indicator of the health environment in which a person grow up • But the average height of adults is not a perfect indicator of the average health of adults • Anyway, there is a close correlation between adult height and adult mortality rates • Data are available for a modest number of countries April, 2013 New Economic School 7

Health indicator: Adult survival rate ASR is the fraction of fifteen-year-olds who will survive Health indicator: Adult survival rate ASR is the fraction of fifteen-year-olds who will survive till sixty years of age, using the current life table. • Good measure of health during working years • Historical data on ASR for a fair number of countries • But there are no good structural estimates linking survival to wages April, 2013 New Economic School 8

Health indicator: ASR - 2 April, 2013 New Economic School 9 Health indicator: ASR - 2 April, 2013 New Economic School 9

Health indicator: Age of menarche • Good indicator of malnutrition in infancy and childhood Health indicator: Age of menarche • Good indicator of malnutrition in infancy and childhood • There exists one structural microeconomic estimate of the relation between age of menarche and wages • There is some historical data • Data are available for a modest number of countries April, 2013 New Economic School 10

Health indicators: Age of menarche - 2 April, 2013 New Economic School 11 Health indicators: Age of menarche - 2 April, 2013 New Economic School 11

Estimating the Return to Health April, 2013 New Economic School 12 Estimating the Return to Health April, 2013 New Economic School 12

Childhood Inputs Instruments: Distance to local health facilities Relative price of food in the Childhood Inputs Instruments: Distance to local health facilities Relative price of food in the worker’s area of origin April, 2013 New Economic School 13

Childhood Inputs April, 2013 New Economic School 14 Childhood Inputs April, 2013 New Economic School 14

Birth weights of twins Variation in birth weight between monozygotic twins Behrman and Rosenzweig Birth weights of twins Variation in birth weight between monozygotic twins Behrman and Rosenzweig (2004) Regress the gap in dependent variable on the gap in fetal growth April, 2013 New Economic School 15

Birth weights of twins One unit difference in fetal growth leads to difference of Birth weights of twins One unit difference in fetal growth leads to difference of 0. 657 (0. 211) years of schooling 3. 76 (0. 43) cm of adult height 0. 190 (0. 077) gap in log wages. Hence return to height is 0. 051 per cm or 5. 1% April, 2013 New Economic School 16

Birth weights of twins Need to eliminate the effect of schooling channel to compare Birth weights of twins Need to eliminate the effect of schooling channel to compare with previous estimate Schooling on height: 0. 175 years of schooling per cm Assume: 0. 10 – return to year of schooling for log(wage) Hence each cm increase log(wage) by 0. 018 through schooling channel April, 2013 New Economic School 17

Birth weights of twins Subtract schooling channel: 0. 0510. 018=0. 033 Each cm of Birth weights of twins Subtract schooling channel: 0. 0510. 018=0. 033 Each cm of height increase log(wage) by 0. 033, holding education constant. Using Black, Devereaux, Salvanes (2007) result is similar: 0. 035 April, 2013 New Economic School 18

Historical Data Fogel (1997) Caloric intake and measures of calorie demand. Great Britain 1780 Historical Data Fogel (1997) Caloric intake and measures of calorie demand. Great Britain 1780 -1980. Improved nutrition raised labor input by factor of 1. 95 1775 -1995: avg height in Britain increased by 9. 1 cm 1832 -1981: age at menarche declined by 28. 5 months April, 2013 New Economic School 19

Historical Data Dividing by the change in height: 0. 073 – return to height Historical Data Dividing by the change in height: 0. 073 – return to height Return to age at menarche: 0. 281 April, 2013 New Economic School 20

Return to Health 6 estimates for Return to Height: Childhood inputs: 0. 080; 0. Return to Health 6 estimates for Return to Height: Childhood inputs: 0. 080; 0. 094; 0. 078 Twins: 0. 033; 0. 035 Historical data: 0. 073 2 estimates for Return to Age of menarche Childhood inputs: 0. 281; 0. 261 April, 2013 New Economic School 21

Cross-Country analysis Indicator: age of menarche The gap in the sample of 3. 7 Cross-Country analysis Indicator: age of menarche The gap in the sample of 3. 7 years translates into labor input per worker by factor 2. 73 Difference in GDP per worker of a factor of 1. 95 April, 2013 New Economic School 22

Cross-Country analysis ASR data are available for cross section. But no estimate of return Cross-Country analysis ASR data are available for cross section. But no estimate of return No cross section data for Height, but we have estimate of return Solution: estimate =19. 2 Regress height on ASR + country FE April, 2013 New Economic School 23

Cross-Country analysis Hence return to ASR = 0. 653 Increase in ASR of 0. Cross-Country analysis Hence return to ASR = 0. 653 Increase in ASR of 0. 1 translate into labor input per worker of 6. 7% and GDP per worker of 4. 4% In data: Gap in ASR = 0. 904 – 0. 214=0. 69 Hence labor input per worker ratio: 1. 59 GDP ratio = 1. 35 April, 2013 New Economic School 24

THE CONTRIBUTION OF HEALTH TO INCOME DIFFERENCES AMONG COUNTRIES • All the terms in THE CONTRIBUTION OF HEALTH TO INCOME DIFFERENCES AMONG COUNTRIES • All the terms in this equation, with the exception of productivity, Ai, can be observed directly. • Alpha = 1/3 (based on the findings in Gollin [2002]) April, 2013 New Economic School 25

April, 2013 New Economic School 26 April, 2013 New Economic School 26

 • The right-column is obtained by summing all the terms in log-income-per-worker equation • The right-column is obtained by summing all the terms in log-income-per-worker equation but leaving out the health variable April, 2013 New Economic School 27

Conclusions • The consistent message from Tables III and IV is that health has Conclusions • The consistent message from Tables III and IV is that health has an economically important effect in determining income differences among countries • But this effect is far from the dominant source of cross-country income variation. • Residual productivity is still left as the most important determinant of income differences among countries • P/S/ The effect of health on income: only direct effect considered but there are indirect effects through human/physical capital accumulation (+) and population growth (-). April, 2013 New Economic School 28