Health Status, Labour Productivity and Economic Growth: A Production Function Approach

Abstract

The present study includes health in a well-specified aggregate production function in an attempt to test for the existence of effect of health on labour productivity. This paper aims at determining the effect of physical capital, labour and human capital consisting of three dimensions - education, experience and health on economic growth. All the parameters of this production function have been estimated using panel data for 2000 and 2010 to obtain measures of the relative contribution of each of the inputs to economic growth. Production function has been estimated by two square least square (2SLS) techniques. In order to find out the factors which are responsible for inter country variations in labour productivity, coefficient of correlation for the selected variables have been computed for all and developing countries. Study found that life expectancy at birth as a proxy of health affected labour productivity and economic growth significantly, whereas, the effect of capital and experience square were found to be non-significant when all and developing countries (excluding high income countries) were considered separately. Overall, the study has found that health and education have positive and statistically significant effect on labour productivity and thus, on economic growth. One year improvement in a population's life expectancy contributes to an increase in 5 to 11 percent in gross domestic product. This is a relatively large effect, indicating that increased expenditure on improving health as well as education is justified purely on the ground of its impact on labour productivity, quite apart from the direct effect of improved health on gross domestic product.