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From From health to health to
wealthwealth
Thorvaldur GylfasonThorvaldur Gylfason
What is at issue?What is at issue?Good health is crucial to individual and Good health is crucial to individual and
social welfare around the world social welfare around the world Health expenditure in OECD-area is Health expenditure in OECD-area is
nearly 600 euros per month for each nearly 600 euros per month for each family of fourfamily of four
Education expenditure is similar Education expenditure is similar
Need to distinguish input from output Need to distinguish input from output Expenditure is input into health careExpenditure is input into health care The output is the health care itselfThe output is the health care itself Output is key, input is notOutput is key, input is not
Expenditure Expenditure on health careon health care
Expenditure is a poor indicator of output Expenditure is a poor indicator of output because its efficiency is unevenbecause its efficiency is uneven
Iceland: substantial hike in expenditure, Iceland: substantial hike in expenditure, but chronic shortage of health carebut chronic shortage of health care
Queues, central planning: inefficientQueues, central planning: inefficient
Allocation of resources in health care Allocation of resources in health care could be made more efficient could be made more efficient through market solutionsthrough market solutions
Greater efficiency means more and Greater efficiency means more and better care for given resourcesbetter care for given resources
Same applies Same applies
to educationto education
Expenditure Expenditure on health careon health care
Allocation of resources is more efficient Allocation of resources is more efficient in a market economy, requiring in a market economy, requiring
More private enterpriseMore private enterprise More competition between providersMore competition between providers More allocation by priceMore allocation by price Keener awareness of costKeener awareness of cost
Central planning is not an efficient way Central planning is not an efficient way of securing greater social equalityof securing greater social equality
There are better ways, through social There are better ways, through social insurance, education, and fiscal policiesinsurance, education, and fiscal policies
Same applies Same applies
to educationto education
Public expenditure on Public expenditure on health care 2001 health care 2001 (% of (% of GDP)GDP)
Iceland, with Iceland, with its young its young population, in population, in
first place first place within OECDwithin OECD
Other Other Nordics, with Nordics, with older older populations, populations, near middle near middle or belowor below
0 2 4 6 8 10
GreeceSpain
ItalyAustriaJapan
FinlandLuxembourg
KoreaBelgium
UKPortugal
Sw itzerlandNetherlands
Sw edenIreland
Norw ayFrance
DenmarkGermany
USAAustraliaCanada
New ZealandIceland
Adjusted for age distribution of population
Private expenditure on Private expenditure on health care 2001 health care 2001 (% of (% of GDP)GDP)
US in class US in class of its ownof its own
All Nordic All Nordic countries countries below below averageaverage0 2 4 6 8 10
LuxembourgSw edenNorw ay
UKDenmark
JapanFinland
ItalySpain
IcelandIrelandFranceBelgiumAustria
New ZealandGermanyPortugalCanadaGreece
NetherlandsAustralia
Sw itzerlandKorea
USA
Canada around Canada around
average, average, behind behind Switzerland, Switzerland, Australia, and Australia, and
the the NetherlandsNetherlands
Adjusted for age distribution of population
Total expenditure on Total expenditure on health care 2001 health care 2001 (% of (% of GDP)GDP)
0 5 10 15 20
LuxembourgSpainJapan
ItalyFinland
UKGreece
Sw edenAustria
Norw ayBelgium
DenmarkIrelandFrance
PortugalNetherlands
GermanyNew
Sw itzerlandAustraliaCanadaIcelandKorea
USA
Public Private
Composition Composition varies greatly varies greatly
across countriesacross countries
1:1 in US, 1:1 in US, Korea, and Korea, and SwitzerlandSwitzerland 1:3 on average1:3 on average
1:6 in Nordic 1:6 in Nordic
countries and countries and
JapanJapan
Adjusted for age distribution of population
Total expenditure on Total expenditure on health care 2002 health care 2002 (% of (% of GDP)GDP)
Huge expenditures, Huge expenditures,
with persistent with persistent
upward trend due upward trend due
in part to medical in part to medical
progressprogress
Makes a difference Makes a difference
how well these how well these
expenditures are expenditures are
managedmanaged
Classic question of Classic question of
efficiency in efficiency in allocation of scarce allocation of scarce
resourcesresources0 5 10 15
Slovak RepublicMexicoPoland
LuxembourgFinlandIreland
Czech RepublicSpain
AustriaUnited Kingdom
HungaryItaly
New ZealandNorw ayDenmarkBelgium
NetherlandsSw edenPortugalGreeceCanadaFranceIceland
GermanySw itzerland
United States
Not adjusted for age distribution of population
Health, human Health, human capital, and capital, and economic growtheconomic growth
Good health is crucial to individual and Good health is crucial to individual and social welfare around the worldsocial welfare around the world
Does public health also matter for Does public health also matter for economic performance and growth? economic performance and growth?
Human capital is good for growthHuman capital is good for growth Education and health augment and Education and health augment and
improve human capital, and growthimprove human capital, and growth Living standards are determined by Living standards are determined by
growth and nothing else, by definitiongrowth and nothing else, by definition
Growth differentialsGrowth differentials
YearsYears
Nati
on
al in
com
e p
er
capit
aN
ati
on
al in
com
e p
er
cap
ita
Country B: Country B: 2% per year2% per year
Country A: Country A: 0,4% per year0,4% per year
Economic systemEconomic system Economic policyEconomic policy EfficiencyEfficiency Health?Health? Nearly Nearly
threefold threefold difference after difference after 60 years60 years
00 6060
Main determinants Main determinants of growth Iof growth I
In ves tm en t
In it ia l in com e N atu ra l resou rces
E d u ca tion
G row th+ +
+ denotes positive effect Physical capital and Physical capital and
human capital are good human capital are good
for growthfor growth
Adam Smith Adam Smith 17761776
Main determinants Main determinants of growth IIof growth II
In ves tm en t
In it ia l in com e N atu ra l resou rces
E d u ca tion
G row th+ +
+ denotes positive effect
+
+
+–
+
– denotes negative effect
Not certain that poor Not certain that poor
countries grow faster than countries grow faster than
richrich
Main determinants Main determinants of growth IIIof growth III
In ves tm en t
In it ia l in com e N atu ra l resou rces
E d u ca tion
G row th+ +
+ denotes positive effect
+
+
+–
+
– denotes negative effect
Natural resource dependence Natural resource dependence
tends to hurt investment and tends to hurt investment and
educationeducation
– –
Main determinants Main determinants of growth IVof growth IV
In ves tm en t
In it ia l in com e N atu ra l resou rces
Health E d u ca tion
G row th+ +
+ denotes positive effect
+
+
+–
+
– denotes negative effect
Does public health Does public health
matter for economic matter for economic
growth?growth?
– –
?
Birth care and national Birth care and national incomeincome
157 countries
Health and Health and income go income go hand in hand in handhand0
10000
20000
30000
40000
50000
0 20 40 60 80 100
Births attended by skilled health staff 1975-2000 (% of total)
GD
P p
er c
apit
a 20
00 (
US
do
llars
) r = 0.80r = 0.80 Luxembourg
USA
OECD
r = rank r = rank correlationcorrelation
Female education and Female education and birth carebirth care
132 countries
0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100
Secondary-school enrolment of girls 1970-98 (% of cohort)
Bir
ths
atte
nd
ed b
y sk
illed
hea
lth
sta
ff
1975
-200
0 (%
of
tota
l)
r = 0.89r = 0.89
EducatioEducation and n and health go health go hand in hand in handhand
Natural resource Natural resource dependence and birth dependence and birth carecare
163 countries0
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100
Primary production 1960-2000 (% of GDP)
Bir
ths
atte
nd
ed b
y sk
illed
hea
lth
sta
ff
1975
-200
0 (%
of
tota
l) r = -0.62r = -0.62
Health is Health is inversely inversely related to related to primary primary production production (and (and directly directly related to related to living living standards)standards)
Birth care and Birth care and growthgrowth
157 countries
Medical Medical care is good care is good for growth for growth and vice and vice versaversa
-8
-6
-4
-2
0
2
4
6
8
0 20 40 60 80 100
Births attended by skilled health staff 1975-2000 (% of total)
Gro
wth
of
GD
P p
er c
apit
a 19
60-2
000,
ad
just
ed
for
init
ial i
nco
me
(% p
er y
ear)
r = 0.50r = 0.50
Medical care is Medical care is
good for growth, good for growth,
even if the effects even if the effects
of education as of education as
well as initial well as initial
income on growth income on growth
are also taken are also taken
into accountinto account
Life Life expectancy expectancy and growthand growth
147 countries-8
-6
-4
-2
0
2
4
6
8
0 20 40 60 80
Life expectancy 1960
Gro
wth
of
GD
P p
er c
apit
a 19
60-2
000,
ad
just
ed
for
init
ial i
nco
me
(% p
er y
ear) r = 0.60r = 0.60
Medical care is Medical care is
good for growthgood for growth
Long lives Long lives are good for are good for growth and growth and vice versavice versa
Here, Here, causation runs causation runs
from life from life expectancy to expectancy to
growthgrowth
Health expenditure and Health expenditure and economic growtheconomic growth
-8
-6
-4
-2
0
2
4
6
8
0 5 10 15
Health expenditure 1990-2000 (% of GDP)
Gro
wth
of
GD
P p
er c
apit
a 19
60-2
000,
ad
just
ed
for
init
ial i
nco
me
(% p
er y
ear)
r = 0.42r = 0.42
An increase in An increase in
health health expenditure by expenditure by
2.5% of GDP 2.5% of GDP goes along with goes along with
an increase in an increase in
growth per growth per capita by 1% per capita by 1% per
yearyearHealth Health expenditure is expenditure is
good for growth good for growth
and vice versa: and vice versa:
Same storySame story
163 countries
Reading the chartsReading the charts
Growth
Education
Growth
Health
Health
Education
+ =
Education helps both growth and public Education helps both growth and public
health, so health and growth go hand in health, so health and growth go hand in
handhand
Another Another interpretationinterpretation
Growth
Health
Growth
Education
Health
Education
+ =
Education spurs growth, and good health is also Education spurs growth, and good health is also
good for growth, so education and growth go good for growth, so education and growth go
hand in handhand in hand
In conclusionIn conclusion
The EndThe EndHealth care, like Health care, like education, helps build education, helps build human capitalhuman capitalDisease and ignorance Disease and ignorance impede economic impede economic growthgrowth
These slides are accessible on my website: www.hi.is/~gylfason
Individual and social welfare depends Individual and social welfare depends mostly on human capital, not natural mostly on human capital, not natural capital capital Public policy needs to encourage Public policy needs to encourage efficient allocation of resources in efficient allocation of resources in health carehealth careMore market solutions, less central More market solutions, less central planningplanning
