The interrelations between health, human capital and economic growth : empirical evidence from the OECD countries and Portugal

Abstract

The main scope of this study is to analyze the role of health on economic growth assuming that health status is a component of human capital, therefore interacting with both, human capital qualifications and economic performance. Health as an integrated part of human capital has assumed an increasing importance in the growth literature over the past decades, being now widely recognized that health, like education, is also an essential factor of labour productivity and, consequently, of economic growth. Despite important achievements made on health status allowing people to live better and for a longer period of time, there are still several issues to analyze in what concerns the economic performance of the developed countries. In fact, these countries face important challenges related to the ageing of the population, the increasing incidence of chronic diseases and an increasing financial pressure on their health and social security systems. In this context, the main objective of this dissertation is to provide empirical evidence that shows the impact of health status on economic growth and highlight the complex interrelations between health, education and income through a cumulative causation mechanism able to generate a virtuous circle of economic growth with expanding tendencies. In order to capture the feedback effects between health, education and income, appropriate econometric specifications and estimation techniques are used based initially on panel data analysis. In a latter phase, a simultaneous equation model is built in order to capture the cumulative causation tendencies between the core variables of the model. The models are applied to the OECD countries and to Portugal. Our empirical findings show that health is indeed an important factor in explaining growth and convergence in the OECD countries and the Portuguese regions at a district level. Economic factors and education are also important in explaining health status. It is also shown that the cumulative causation mechanism is a useful tool to explain the interactions between health, education and economic growth in Portugal. To a deeper understanding of the growth process, health factors and human capital qualifications must be included in the empirical analysis. In general, our dissertation corroborates with the thesis that health improvements have significant benefits on economic growth and therefore it should be considered as an important component of human capital along with education. Investing in individuals’ education and health is important not only for an increasing wellbeing but also for a sustainable economicgrowth. Empirical evidence of this positive impact as well as on the linkages between health, education and economic growth are important guidelines for policy decision makers.