The direct and indirect effect of health on economic growth | Lady Lou M. D’Lonsod

MY last article discussed the two-way relationship between economic growth and human development . Human development affects economic growth and vice versa. There are studies illustrating the linkages between human development and economic growth by categorizing the relationship into virtuous, vicious, EG lop-sided, and HD lop-sided cycles.

Any nation must avoid the vicious cycle because it leads to a poverty trap. The EG lop-sided cycle has good growth and poor human development performance. By contrast, the HD lop-sided cycle has good human development and poor growth performance. The country that moves temporarily to the EG lop-sided growth is reverted to the vicious cycle, while the nation that temporarily moves to the HD lop-sided growth is accelerated to the virtuous cycle.

The literature on health and economic growth reveals that health, directly and indirectly, affects economic growth. The three channels through which health indirectly affects economic growth are education, physical capital accumulation, and population growth. The direct effect of health on economic growth shows a positive relationship. The healthier the country’s population, the higher the income per capita growth rate.

The indirect effect of health on economic growth through physical capital accumulation is through savings and investments. Longer time horizons lead to the accumulation of more retirement savings to finance old-age consumption. The higher retirement savings are the potential resources for investment in the form of physical capital accumulation and, thus, increase wealth. Conversely, poor health reduces current and accumulated household savings.

Source: Healthcare Press (healthcarepress.net)

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