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Has Health Capital Formation Cured 'Baumol's Disease'? - Panel Granger Causality Evidence for OECD Countries

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  • Jochen Hartwig

Abstract

A large body of both theoretical and empirical literature has affirmed a positive impact of human capital accumulation in the form of health on economic growth. Yet Baumol (1967) has presented a model in which imbalances in productivity growth between a 'progressive' (manufacturing) sector and a 'nonprogressive' sector of the economy (of which health care forms an integral part) lead to perpetual expenditure shifts into the latter and, as a consequence, to a decline in overall GDP growth. Which of the two views has an empirical grounding is here tested by means of Granger causality analysis of a panel of 21 OECD countries. The results do not lend support to the hypothesis that health capital formation fosters economic growth in rich countries. They are more in line with the predictions of Baumol's model of unbalanced growth.

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  • Jochen Hartwig, 2008. "Has Health Capital Formation Cured 'Baumol's Disease'? - Panel Granger Causality Evidence for OECD Countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich.
    • Handle: RePEc:kof:wpskof:08-206
    DOI: 10.3929/ethz-a-005666787
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    3. Akinwande Atanda & Andrea Kutinova Menclova & W. Robert Reed, 2018. "Is health care infected by Baumol's cost disease? Test of a new model," Health Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 832-849, May.
    4. Husain, Muhammad Jami, 2009. "Contribution of health to economic development: a survey and overview," Economics Discussion Papers 2009-40, Kiel Institute for the World Economy (IfW Kiel).
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    Keywords

    Human capital; health expenditure; 'Baumol's (Cost) Disease'; Panel Granger causality test;
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