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Health, education and endogenous growth

  • Zon A.H. van
  • Muysken J.

    (MERIT)

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    The purpose of the paper is to show that, from a growth perspective, government resources can be spent in two different ways. Resources can be allocated to uses which support growth, and to uses which generate growth. We take the provision of health services as an example of the first type of use, and the provision of educational services as an example of the second. This enables us to integrate both types of uses of scarce resources in an endogenous growth framework and to derive the optimum mix of the provision of health and educational services both from the perspective of health as a complement to growth and health as a substitute for growth. The model illustrates that there is a trade-off between growth as such and the provision of health-services. It also shows that a slow down in growth could be expected to occur when the preference for health is positively influenced by a growing income per head or in the case of an ageing population. Finally, we show that the model can account for a ’growth take off’ in countries which are too poor to save, and that this take off can be induced by ’just the right’ amount of income transfer to those countries : too little aid doesn’t seem to help at all, while too much aid unnecessarily burdens the long term solvability of the receiving country if aid is provided in the form of loans.

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    File URL: http://digitalarchive.maastrichtuniversity.nl/fedora/objects/guid:683ff455-adc7-4a69-bcc2-d4a09229e886/datastreams/ASSET1/content
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    Paper provided by Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) in its series Research Memorandum with number 006.

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    Date of creation: 1997
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    Handle: RePEc:unm:umamer:1997006
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    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, 07.
    3. Muurinen, Jaana-Marja, 1982. "Demand for health: A generalised Grossman model," Journal of Health Economics, Elsevier, vol. 1(1), pages 5-28, May.
    4. Johansson, Per-Olov & Lofgren, Karl-Gustaf, 1995. "Wealth from optimal health," Journal of Health Economics, Elsevier, vol. 14(1), pages 65-79, May.
    5. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 761-82, August.
    6. Victor R. Fuchs, 1982. "Time Preference and Health: An Exploratory Study," NBER Chapters, in: Economic Aspects of Health, pages 93-120 National Bureau of Economic Research, Inc.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    8. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
    9. Forster, Bruce A, 1989. "Optimal Health Investment Strategies," Bulletin of Economic Research, Wiley Blackwell, vol. 41(1), pages 45-57, January.
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