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The Productivity of Pharmaceuticals in Improving Health: An Analysis of the OECD Health Data

  • James W. Shaw

    (University of Arizona)

  • William C. Horrace

    (Syracuse University)

  • Ronald J. Vogel

    (University of Arizona)

Although a number of studies have been conducted on health production functions, little attention has been given to pharmaceuticals as a separate input into the production of health. Building upon existing published work, this paper uses an alternative specification and more recent data to estimate the effect of pharmaceutical expenditures on levels of health in the member countries of the Organization for Economic Cooperation and Development (OECD). In a sample of developed countries, we found that pharmaceutical consumption, as measured by per capita drug expenditures, has a positive effect on life expectancy at advanced ages. The marginal effect of pharmaceutical consumption is consistent with estimates that have been reported previously but appears to decline with increasing age. Over the past few years, the substantial and disproportionate growth of pharmaceutical expenditures for public and private payers in the U.S. has led to calls for regulatory intervention (e.g., price controls). However, our research suggests that increases in drug spending may yield further increases in life expectancy.

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File URL: http://128.118.178.162/eps/hew/papers/0206/0206001.pdf
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Paper provided by EconWPA in its series HEW with number 0206001.

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Length: 42 pages
Date of creation: 19 Jun 2002
Date of revision: 11 May 2003
Handle: RePEc:wpa:wuwphe:0206001
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP; pages: 42; figures: included. The effects of pharmaceuticals on health
Contact details of provider: Web page: http://128.118.178.162

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  1. Frech, H. E. III & Miller, Richard D. Jr., 1996. "The Productivity of Health Care and Pharmaceuticals: An International Comparison," University of California at Los Angeles, Research Program in Pharmaceutical Economics and Policy qt0d90459k, Research Program in Pharmaceutical Economics and Policy, UCLA.
  2. Wolfe, Barbara L., 1986. "Health status and medical expenditures: Is there a link?," Social Science & Medicine, Elsevier, vol. 22(10), pages 993-999, January.
  3. Frank R. Lichtenberg, 1996. "The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality," NBER Working Papers 5418, National Bureau of Economic Research, Inc.
  4. Andrew H. Briggs & David E. Wonderling & Christopher Z. Mooney, 1997. "Pulling cost-effectiveness analysis up by its bootstraps: A non-parametric approach to confidence interval estimation," Health Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 327-340.
  5. Bidani, Benu & Ravallion, Martin, 1995. "Decomposing social indicators using distributional data," Policy Research Working Paper Series 1487, The World Bank.
  6. Wolfe, Barbara & Gabay, Mary, 1987. "Health status and medical expenditures: More evidence of a link," Social Science & Medicine, Elsevier, vol. 25(8), pages 883-888, January.
  7. Charles T. Stewart Jr., 1971. "Allocation of Resources to Health," Journal of Human Resources, University of Wisconsin Press, vol. 6(1), pages 103-122.
  8. Wnuk-Lipinski, Edmund & Illsey, Raymond, 1990. "International comparative analysis: Main findings and conclusions," Social Science & Medicine, Elsevier, vol. 31(8), pages 879-889, January.
  9. Sudhir Anand & Martin Ravallion, 1993. "Human Development in Poor Countries: On the Role of Private Incomes and Public Services," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 133-150, Winter.
  10. Frank R. Lichtenberg, 1998. "Pharmaceutical Innovation, Mortality Reduction, and Economic Growth," NBER Working Papers 6569, National Bureau of Economic Research, Inc.
  11. Szuba, Tadeusz J., 1986. "International comparison of drug consumption: Impact of prices," Social Science & Medicine, Elsevier, vol. 22(10), pages 1019-1025, January.
  12. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
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