Abstract

In this article, we provide a comprehensive overview of the role that health plays in economic develop­ment. We study cross-country differences in income and health and examine the underused value-of-­life and life-year gain measures. In particular, we compare two value-of-life measures, one based on life expectancy and lifetime utility, and the other based on adult mortality and life insurance data. We find that the perception and receptiveness of life insurance are likely better in countries at more advanced stages of economic development. The value-of-life measure based on life insurance data is thus biased upward and downward for developed and developing countries, respectively. We then summarize the strand of theoretical literature and provide several modeling ingredients potentially useful for establishing an integrated analytic structure for understanding the role that health plays in the process of economic development.

Ping Wang is a research fellow at the Federal Reserve Bank of St. Louis, a professor at Washington University in St. Louis, and a research associate at the National Bureau of Economic Research. Yin-Chi Wang is an assistant professor at National Taipei University. 

INTRODUCTION

Over the past several decades, we have observed large and persistent disparities in per capita real income across countries. For example, based on our data sample of 80 countries, documented in the next section, the top 10 percent of countries had, on average, relative real income per worker about 85 percent of the U.S. level in 1960, whereas the bottom 10 percent of countries had an average of about 4.0 percent; the comparable figures became 95 percent and 2.5 percent, respectively, in 2010. That is, the ratio of the top 10 percent to the bottom 10 percent of relative income widened from 21 to 38 over 50 years. Such disparities have generated a sizable literature of development accounting, attempting to disentangle the underlying sources causing the income gaps. While the literature has offered extensive studies on potential drivers—particularly factors affecting physical, knowledge, and research capital accumulation—the roles played by health capital have been largely ignored.

In this article, we provide a comprehensive overview of such roles based on individual decisionmaking. We begin by providing in Section 2 an overview of some well-known cross-­country disparities in incomes and education-based measures of human capital. We then construct in Section 3 various measures that illustrate health disparities during 1960-2010. Specifically, we study cross-country differences in the following two most commonly used health measures: life expectancy at birth and adult mortality. We further examine the underused value-of-life and life-year gain measures. While some measures have been analyzed previously, the purpose of our article is to offer a deeper look using a unified framework with a broader set of cross-country data. In particular, to produce more robust findings, we group countries by their stage and speed of development because it is likely that some within-group disparities may exhibit distinct patterns.

Our data analysis enables us to establish several stylized facts. During 1960-2010, the disparity in relative real income per worker widened across countries. A higher income level made it more possible to have a better education and better health in 2010 than in 1960. Despite the overall improvement in health as measured by life expectancy, the adult mortality rate did not experience steady improvement in 1990-2000, most plausibly due to the spread of HIV. In our preferred wealth-based measure of value of life, the United States experienced a 2.5-fold increase in the value of life over the 1960-2010 50-year interval. We also find that the relative position of countries with low growth rates is deteriorating in both the relative income (falling from 32 percent to 20 percent) and relative value of life (falling from 28 percent to 20 percent), where those slow-growing countries experience a modest increase in life expectancy.

With these stylized facts in mind, we would like to call attention to the fact that, in this research area, it is "theory behind empirics." In Section 4, we thus summarize the strand of theoretical literature and provide several modeling ingredients potentially useful for establishing an integrated analytic structure for understanding the role health plays in the process of economic development. To be more clear, our discussion is organized around the following two fundamental relationships: health production and health evolution. In Section 5, we examine the role of health in economic development from various perspectives, including morbidity and productivity, health investment incentives, quality of life, the contribution of health to growth, and barriers to better health.

We acknowledge there are several dimensions of difficulty in constructing a unified framework that may suit all countries at different development stages. Thus, the reader should view our article as a "first-step organizing framework" toward analyzing the issue concerning health and economic development from cross-country perspectives—one that goes over several useful stylized facts based on cross-country data.

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