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Barriers to Health and the Poverty Trap

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  • Yin-Chi Wang
  • Ping Wang

Abstract

Why have some poor countries been able to take off while others are still stuck in the poverty trap? To address this old question, we observe that (i) with similar or higher levels of educational attainment, trapped countries tend to have much poorer health conditions compared to the initially poor countries that later took off, and (ii) improving health conditions in poor countries usually involves large-scale investment where such resources can be easily misallocated. We construct a dynamic general equilibrium model with endogenous health and knowledge accumulation, allowing health-related institutional barriers to affect individual incentives and equilibrium outcomes. We then calibrate the model to fit (i) the U.S. economy (as a benchmark), (ii) a representative trapped economy based on the average economic performance and economic conditions of 41 countries that are still in the poverty trap, (iii) a group of trapped economies with richer institutional data (Bangladesh, Kenya and Nigeria), and (iv) two initially poor countries that later took off (China and India). The results show that, although low among all countries in this study, the U.S. economy still faced a health-related institutional barrier of 15%. The trapped economies all suffered much large barriers ranging from 50% to 73% under which the incentive to invest in health is severely hindered. For China and India, the magnitudes of such barriers were large (about twice as much as for the U.S. and half that for the trapped economies on average) but not enough to undermine the willingness to invest in health. This paper thereby advances our understanding of the role played by barriers to health in the poverty trap.

Suggested Citation

  • Yin-Chi Wang & Ping Wang, 2013. "Barriers to Health and the Poverty Trap," NBER Working Papers 19263, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19263
    Note: CH DEV EFG HC HE
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    References listed on IDEAS

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    1. Oecd, 2002. "Aid volume, channels and allocations for poverty reduction," OECD Journal on Development, OECD Publishing, vol. 3(3), pages 33-46.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. #HEJC papers for September 2013
      by academichealtheconomists in The Academic Health Economists' Blog on 2013-09-01 04:01:38

    More about this item

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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