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Health and growth: causality through education

  • Rui Huang
  • Lilyan E. Fulginiti
  • E. Wesley F. Peterson

Purpose – The paper aims to theoretically and empirically investigate the impact on human capital investment decisions and income growth of lowered life expectancy as a result of HIV/AIDS and other diseases. Design/methodology/approach – The theoretical model is a three-period overlapping generations model where individuals go through three stages in their lives, namely, young, adult, and old. The model extends existing theoretical models by allowing the probability of premature death to differ for individuals at different life stages, and by allowing for stochastic technological advances. The empirical investigation focuses on the effect of HIV/AIDS on life expectancy and on the role of health in educational investments and growth. Potential endogeneity is addressed by using various strategies, such as controlling for country-specific time-invariant unobservables and by using the male-circumcision rate as an instrumental variable for HIV/AIDS prevalence. Findings – The paper shows theoretically that an increased probability of premature death leads to less investment in human capital, and consequently slower growth. Empirically, the paper finds that HIV/AIDS has resulted in a substantial decline in life expectancy in African countries and these falling life expectancies are indeed associated with lower educational attainment and slower economic growth world wide. Originality/value – The theoretical and empirical findings reveal a causal link flowing from health to growth, which has been largely overlooked by the existing literature. The main implication is that health investments that decrease the incidence of diseases like HIV/AIDS resulting in increases in life expectancy through their complementarity with human capital investments lead to long run growth.

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Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

Volume (Year): 2 (2010)
Issue (Month): 3 (September)
Pages: 321-344

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Handle: RePEc:eme:caerpp:v:2:y:2010:i:3:p:321-344
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  1. David E. Bloom & Jeffrey G. Williamson, 1997. "Demographic Transitions and Economic Miracles in Emerging Asia," NBER Working Papers 6268, National Bureau of Economic Research, Inc.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
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  9. Kalemli-Ozcan, Sebnem & Ryder, Harl E. & Weil, David N., 2000. "Mortality decline, human capital investment, and economic growth," Journal of Development Economics, Elsevier, vol. 62(1), pages 1-23, June.
  10. David E. Bloom & David Canning, 2004. "The Health and Wealth of Africa," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 5(2), pages 57-81, April.
  11. Desmond McCarthy & Holger Wolf & Yi Wu, 2000. "The Growth Costs of Malaria," NBER Working Papers 7541, National Bureau of Economic Research, Inc.
  12. Alwyn Young, 2005. "The Gift of the Dying: The Tragedy of Aids and the Welfare of Future African Generations," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 423-466, May.
  13. Swanson, Charles E & Kopecky, Kenneth J, 1999. "Lifespan and Output," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 213-25, April.
  14. de la Croix, David & Licandro, Omar, 1999. "Life expectancy and endogenous growth," Economics Letters, Elsevier, vol. 65(2), pages 255-263, November.
  15. Daron Acemoglu & Simon Johnson, 2007. "Disease and Development: The Effect of Life Expectancy on Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 925-985, December.
  16. Clive Bell & Shantayanan Devarajan & Hans Gersbach, 2006. "The Long-Run Economic Costs of aids: A Model with an Application to South Africa," World Bank Economic Review, World Bank Group, vol. 20(1), pages 55-89.
  17. Sebnem Kalemli-Ozcan, 2002. "Does the Mortality Decline Promote Economic Growth?," Macroeconomics 0212008, EconWPA.
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