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

Author

Listed:
  • James W. Shaw

    (University of Arizona)

  • William C. Horrace

    (Syracuse University)

  • Ronald J. Vogel

    (University of Arizona)

Abstract

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.

Suggested Citation

  • James W. Shaw & William C. Horrace & Ronald J. Vogel, 2002. "The Productivity of Pharmaceuticals in Improving Health: An Analysis of the OECD Health Data," HEW 0206001, EconWPA, revised 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
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Szuba, Tadeusz J., 1986. "International comparison of drug consumption: Impact of prices," Social Science & Medicine, Elsevier, vol. 22(10), pages 1019-1025, January.
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    5. 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.
    6. Frank R. Lichtenberg, 1998. "Pharmaceutical Innovation, Mortality Reduction, and Economic Growth," NBER Working Papers 6569, National Bureau of Economic Research, Inc.
    7. Wolfe, Barbara L., 1986. "Health status and medical expenditures: Is there a link?," Social Science & Medicine, Elsevier, vol. 22(10), pages 993-999, January.
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    11. Wnuk-Lipinski, Edmund & Illsey, Raymond, 1990. "International comparative analysis: Main findings and conclusions," Social Science & Medicine, Elsevier, vol. 31(8), pages 879-889, January.
    12. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, January.
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    More about this item

    Keywords

    Health production; life expectancy; pharmaceuticals; OECD; ecological studies;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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