RESEARCH ARTICLE

Health and economic growth: Evidence from

dynamic panel data of 143 years
Rajesh Sharma*
University School of Management and Entrepreneurship, Delhi Technological University, Delhi, India

* [Link]@[Link]

Abstract
a1111111111
This paper re-examines health-growth relationship using an unbalanced panel of 17
a1111111111
a1111111111 advanced economies for the period 1870–2013 and employs panel generalised method of
a1111111111 moments estimator that takes care of endogeneity issues, which arise due to reverse cau-
a1111111111 sality. We utilise macroeconomic data corresponding to inflation, government expenditure,
trade and schooling in sample countries that takes care of omitted variable bias in growth
regression. With alternate model specifications, we show that population health proxied
by life expectancy exert a positive and significant effect on both real income per capita as
OPEN ACCESS well as growth. Our results are in conformity with the existing empirical evidence on the rela-
Citation: Sharma R (2018) Health and economic tionship between health and economic growth, they, however, are more robust due to the
growth: Evidence from dynamic panel data of 143 presence of long-term data, appropriate econometric procedure and alternate model specifi-
years. PLoS ONE 13(10): e0204940. [Link] cations. We also show a strong role of endogeneity in driving standard results in growth
org/10.1371/[Link].0204940
empirics. In addition to life expectancy, other constituent of human capital, education prox-
Editor: Wu Zeng, Brandeis University, UNITED ied by schooling is also positively associated with real per capita income. Policy implication
STATES
that follows from this paper is that per capita income can be boosted through focussed policy
Received: May 22, 2018 attention on population health. The results, however, posit differing policy implications for
Accepted: September 16, 2018 advanced and developing economies.
Published: October 17, 2018

Copyright: © 2018 Rajesh Sharma. This is an open

access article distributed under the terms of the
Creative Commons Attribution License, which Introduction
permits unrestricted use, distribution, and
Researchers and policymakers strive hard to identify factors that influence economic growth
reproduction in any medium, provided the original
author and source are credited.
to aid policymaking and implementation. Human capital made inroads into growth frame-
work following endogenous growth revolution and is identified as one of the most important
Data Availability Statement: Data are available at:
contributors to economic growth [1–3]. Recently, there are more evidences to the positive
Macroeconomic Data: [Link]
net/data/; Data corresponding to Fig 1: http://
effect of health and healthcare investments in economic growth [4–5] and the importance of
[Link]/data/[Link]; Life human capital for economic growth is re-emphasised by the World Bank [6–7]. Health and
Expectancy at Birth: [Link] education are the most important constituents of human capital. Focussing on health, Fig 1A
Data Corresponding to Fig 2: [Link] and 1B illustrates that rich countries are healthier when compared to poor countries, which
gho/data/. gives rise to a question: whether rich countries are healthier because they are rich, or they are
Funding: The author(s) received no specific rich because they are healthier?
funding for this work. This question is analysed using a variety of population health indicators such as life expec-
Competing interests: The authors have declared tancy [8], adult survival rate [9], child mortality [10] and adult height [11]. Theoretically, a
that no competing interests exist.

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 Health and economic growth

Fig 1. Relation between income per capita and indicators of population health. a) LogGDP vs Life Expectancy b)
LogGDP vs U5MR. The data pertains to 193 countries for 2015 and is procured from World Development Indicators
(WDI) database of World Bank. LE: Life Expectancy at birth (in years). U5MR: Under-five mortality rate is the
probability per 1,000 that a new-born child will die before reaching age five, if subject to age-specific mortality rates of
the specified year. LogGDP: Natural Logarithm of real GDP per capita at constant 2010 USD.
[Link]

healthy workforce contributes to greater economic output due to increased longevity as well as
due to lesser number of working days lost due to ill-health. Moreover, a healthy workforce can
produce more ideas and thereby contributes towards improved productivity of existing capital
[1]. However, increased longevity may depress per capita income due to increased population
and thin spreading of existing resources over large population [12]. Moreover, improved health
may lead to substitution in favour of leisure as the same amount of income can be earned
through lesser number of days of work. Which channel works, or which force dominates? Is
increased longevity sufficient to compensate for its depressing effect or is there a plateau beyond
which the effect of improved health starts diminishing, or it continues to provide productivity
gains over infinite horizon as predicted in AK type endogenous growth models? In this paper,
we aim to provide answers to these questions by re-examining health-growth relationship using
a data-set of 17 advanced economies for the period 1870–2013. While previous studies were
limited by data availability as they primarily relied on World Health Organisation (WHO) data-
set for population health and Penn World Table (PWT) dataset for economic indicators, this
paper draws strength from availability of 143 years of macroeconomic data that allows us to
examine long-term relationship between economic growth and population health proxied by
life expectancy. Working on a larger canvas of data is expected to unveil better insights into the
long-term relationship between population health and economic growth.
The data corresponding to per capita income is made available for long time series by the
Maddison project and the data pertaining to life expectancy is made available by Human Mor-
tality Database [13] that provides data from 18th century for a set of countries. However, only a
bivariate analysis between life expectancy and economic growth would have resulted in biased

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 Health and economic growth

and inconsistent estimates owing to omitted variable bias. We overcome the omitted variable
bias in this paper by using historical macroeconomic data from Jorda, Schularik and Taylor
([14], JST from hereon) database which provides data for 17 advanced economies from 1870.
The JST database contains data for consumer price index (CPI), merchandise trade, govern-
ment expenditure and investment to GDP ratio, all of these factors have been observed to be
robust determinants of economic growth.
In addition to resolving omitted variable concerns, we also take care of endogeneity issue in
our estimation framework. This is because, growth determinants such as life expectancy or
inflation may be affected by per capita income, thereby resulting in biased estimates due to
reverse causality concerns. Concerning endogeneity in growth regression Caselli et al. [15]
writes “At a more abstract level, we wonder whether the very notion of exogenous variables is at
all useful in a growth framework.” To control for endogeneity issues arising out of reverse cau-
sality from income to life expectancy, we apply panel generalised method of moments (GMM)
technique [16–18]. The advantage with panel GMM methodologies is that we do not require
separate instrument variable for each endogenous variable, rather, we can use internal instru-
ments, which are made available by the panel nature of the dataset. In this paper, we also make
a distinction between levels versus growth effect. Generally, researchers consider either real per
capita income or its growth rate as the dependent variable to identify whether a given macro-
economic, demographic or any other factor influences levels of per capita income or its growth
rate. In this paper, we consider both variables as dependent variables separately, and identify
whether population health proxied by life expectancy has significant association with the levels
of real per capita income and growth rate.
The main contribution of the paper is to assemble data on life expectancy and per capita
income for the period beginning 1870. Moreover, in order to abate omitted variable concerns
in growth regression, we could also gather data of macroeconomic variables, which are found
to be significant in growth regression. The presence of data-set for such a long period allows us
to examine long-run relationship between health and growth which was earlier not possible
due to data-set dating back to 1960, only. Our data-set covers a period of time in which coun-
tries experienced changes in both economic and demographic profile which provides us with
sufficient dynamics to study health-growth relationship as well as to provide few policy impli-
cations. Second, we also employ one of the most appropriate econometric procedures that
takes care of possible endogeneity concerns while examining health-growth relationship.
Rest of this paper is structured as follows. The section titled “Materials and Methods” is
devoted to data and econometric methodology employed in the paper. The section titled
“Results and Discussion” provides empirical results and ensuing discussion of results along
with the limitations of the paper. The section titled “Concluding Remarks” sums up the paper
and provides few avenues of future research.

Materials and methods

Data and variables
We employ an unbalanced panel of 17 advanced economies for the period 1870–2013. The
sample countries are: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy,
Japan, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and
United States (S1 Table provides key data for sample countries). The choice of sample coun-
tries is purely governed by data availability as long time series data exceeding a century of
modern macroeconomic history is available only in these set of countries.
The level of economic development is represented by GDP per capita at purchasing power
parity, expressed in natural logarithmic terms, as is commonly used in growth literature. As

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 Health and economic growth

control variables, we include investment to GDP ratio (INVEST), average years of total school-
ing (SCHOOLING), total merchandise trade (exports plus imports) to GDP ratio (OPEN),
INFLATION and government expenditure to GDP ratio (GOVT_EXP). The choice of control
variables is dictated by growth theory in which these variables along with measures of human
capital are found to be the most robust determinants of economic growth (see Table 1 for vari-
able definitions and sources of data). All the data is averaged over 10 years to examine the
long-term effects of population health on income and to take care of short-term fluctuations
[15]. In growth literature, it is a general practice to work with data averaged over five years to
arrive at long-term effects of growth determinants [15, 19, 20]. However, the presence of long
time series data in this paper allows us to work with ten-year averaged data, which is expected
to provide more robust evidence of long-term relationship between population health and eco-
nomic growth.
Data is averaged over 1871–1880, 1881–1890 and so on with last observation averaged over
the period 2001–2013 providing us with a maximum of 14 observations per country. As
schooling data is available at five-year frequency, we used data of median year as representative
of the decade. For instance, data of schooling in 1875 serves as one observation in the decadal
average of 1871–1880. Natural logarithm of real income per capita in 1870 serves as initial
income for the decade 1871–1880 and so on with natural logarithm of real income per capita
in 2000 serving as initial income for the period 2001–2013 (see Table 2 for descriptive
statistics).
Life expectancy as indicator of population health. We use life expectancy at birth as a
proxy of population health. Although health is a multi-dimensional concept and life expec-
tancy is one of the most widely used indicator of population health [8, 12, 25, 26], it is not with-
out limitations. For instance, a country may have high life expectancy but majority of its
population might be suffering from illness and might not be productive. For instance, in poor
economies, due to poor nutritional availability during childhood, a child will be lesser produc-
tive in performing tasks in future life expectancy may not be high because of available medical
care [9]. A better measure may be health adjusted life expectancy (HALE) that calculates
healthy years of life that a child at birth is expected to live [27]. However, data pertaining to
HALE or other indicators of population health such as adult mortality rate (AMR) or child
mortality (U5MR) is available only for shorter duration.

Table 1. Variable description and sources of data.

Variable Variable Description Data Source
LogGDP Natural Logarithm of real per capita JST Database. (Schularik and Taylor [21] and
income (at PPP prices) Jorda, Schularik and Taylor [14, 22])
GROWTH Ln (GDPt)- Ln (GDPt-1) JST Database
INFLATION Ln (CPIt)- Ln (CPIt-1) JST Database
INVEST Investment to GDP Ratio JST Database
GOVT_EXP Government Expenditure to GDP ratio JST Database
OPEN Ratio of [Exports +Imports] to GDP JST Database
LIFE Life Expectancy at birth (in years) HMD Database and WDI Database�
EXPECTANCY
SCHOOLING Mean years of total schooling in adult Lee and Lee [23, 24]
population (15–64 years old)
�
Data for Germany is procured from World Development Indicators which is available from 1950 whereas data
from HMD was available only from 1990.

[Link]

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 Health and economic growth

Table 2. Descriptive statistics.

Variable No. of Obs. Mean Std. Dev Min. Max.
GROWTH 238 0.019 0.017 -0.045 0.087
LogGDP 238 8.613 0.896 6.669 10.333
INFLATION 238 0.049 0.175 -0.062 2.573
INVEST 225 0.184 0.060 0.052 0.356
GOVT_EXP 233 0.318 0.190 0.019 0.849
OPEN 237 0.427 0.349 0.060 2.855
LIFE EXPECTANCY 194 64.650 12.372 32.666 82.515
SCHOOLING 238 5.983 3.273 0.150 13.010

Based on ten-year averaged data. GROWTH: growth rate of real GDP per capita (at PPP prices); LogGDP: natural logarithm of real GDP per capita at PPP prices;
INFLATION: calculated as difference in natural logarithm of CPI; INVEST: investment to GDP ratio; GOVT_EXP: government expenditure to GDP ratio; OPEN: total
merchandise trade to GDP ratio; LIFE EXPECTANCY: life expectancy at birth; SCHOOLING: average number of total years of schooling.

[Link]

We employ life expectancy at birth as the indicator of population health for two reasons.
First, the data pertaining to life expectancy extends back to 19th century which enables a better
empirical examination between population health and economic growth. Second, life expec-
tancy has a strong, albeit not perfect, correlation with most other indicators of population
health. For instance, the correlation of life expectancy at birth with healthy life expectancy at
birth (HALE), adult mortality rate (AMR) and child mortality (U5MR) is 0.99, -0.96 and 0.93,
respectively (See Fig 2A–2C). Therefore, life expectancy may be regarded as a good, although

Fig 2. Relationship between life expectancy and other indicators of population health. a) LE vs HALE b) LE vs
AMR c) LE vs U5MR. LE: Life Expectancy at birth (in years), HALE: Healthy Life Expectancy (at birth), AMR: Adult
Mortality Rate (per 1000 population) and U5MR: Under-5 mortality Rate (per 1000 livebirths). The data pertains to
183 countries in 2015 and is procured from WHO mortality and global health estimates database.
[Link]

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 Health and economic growth

not perfect, representative indicator of population health (See S2 Table for data used in the
figure).

Econometric methodology
Our basic regression framework builds upon Barro-type [28] growth regression model as spec-
ified below:
yi ¼ a þ gX þ εi ð1Þ

Here, i = 1,2,3. . .. . .. . .. . .n indexes cross-sections, yi is the per capita income of ith cross-
section, X is the vector of growth determinants and εi is the stochastic error term. Above
regression specified in cross-sectional framework suffers from two main limitations. First, it
doesn’t take care of individual heterogeneity and the assumption of identical production func-
tion may result in biased coefficient estimates of γ [15]. This happens because of ignoring
country-specific fixed effects in above regression, which may be correlated with regressors,
therefore, estimation of cross-sectional regression Eq (1) through ordinary least squares (OLS)
leads to biased coefficient estimates [15]. Second, it doesn’t exploit the time dimension of the
data-set. Panel estimation which relaxes the restrictive assumption of identical production
function can take care of both limitations. Growth regression in panel framework is specified
as below:
Yi;t ¼ mi þ gXi;t þ εi;t ð2Þ

Here i = 1,2,3. . . . . . indexes country; t = 1,2,3. . .. indexes time; μi is the country-specific

fixed effect that accounts for cross-sectional heterogeneity. In growth regression, income in
previous period is also a significant determinant of income in the following period [15], there-
fore, it is more appropriate to specify growth regression in a dynamic panel framework as
below.
Yi;t ¼ mi þ bYi;t 1 þ gXi;t þ εi;t ð3Þ

However, estimation of Eq (3) using OLS will result in biased coefficient estimates due to
correlation between fixed effects and lagged dependent variable [29]. Part of this issue can be
resolved by differencing the data, which eliminates fixed effects.
Yi;t Yi;t 1 ¼ bðYi;t 1 Yi;t 2 Þ þ gðXi;t Xi;t 1 Þ þ ðεi;t εi;t 1 Þ ð4Þ

Estimation of Eq (4) through OLS still leads to biased estimates due to correlation between
(Yi,t−1−Yi,t−2) and (εi,t−εi,t−1). There are also endogeneity concerns due to potential reverse
causality from income to growth determinants such as inflation, health and schooling. The
estimation of Eq (4) using OLS fails to address the concerns imposed by endogeneity of ex-
planatory variables. The endogeneity issue is resolved by using Yi,t−2 as instrument for (Yi,t−1−
Yi,t−2) which is correlated with (Yi,t−1−Yi,t−2) by construction but is uncorrelated with (εi,t−εi,t−1)
provided that new error (εi,t−εi,t−1) term is serially uncorrelated (Arellano and Bond [16], Eq (4)
also marks the first step in first difference GMM estimation). Therefore, following moment con-
ditions may be exploited to arrive at the estimates of β and γ.
E½yit s ðεit εit 1 Þ� ¼ 0 for s � 2; t ¼ 3; 4 . . . . . . ::T: ð5Þ

A similar instrumental variable strategy can be pursued if the explanatory variables (X’s) are
treated as endogenous providing us with following moment conditions.
E½xit s ðεit εit 1 Þ� ¼ 0 for s � 2; t ¼ 3; 4 . . . . . . T: ð6Þ

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 Health and economic growth

However, moment conditions specified in Eqs (5) and (6) result in more moment conditions
than the number of parameters to be estimated, thereby results in an over-identified system of
equations. Such an over-identified system of equations is solved through generalised method of
moments (GMM) estimation to arrive at coefficient estimates of β and γ [16].
Model estimation using panel GMM estimators gives valid estimates, provided they pass a
battery of specifications tests (Arellano and Bond [16]). First, validity of lagged values instru-
menting for the differenced variable depends crucially on their being uncorrelated with differ-
enced error term (εit−εit−1) which can be tested using Sargan test of overidentifying
restrictions [30]. In this paper, we rely on the results from Hansen test of over-identifying
restrictions rather than Sargan test, as the later not robust to heteroscedasticity or autocorrela-
tion [31]. Therefore, following Roodman [31], for one-step, robust estimation, we report Han-
sen J statistic, which is the minimized value of two-step GMM criterion function and is robust.
Second, instrument validity depends upon the assumption of error term being serially uncorre-
lated [16]. We, however, require errors to be serially uncorrelated of order two only, as by con-
struction, errors in the differenced Eq (4) are correlated of order one i.e. (εit−εit−1) is
correlated with (εit−1−εit−2). Therefore, we just require errors to be uncorrelated of order 2
which is tested using Arellano and Bond test [16].

Results and discussion

Preliminary observations
Fig 3A and 3B presents bivariate relation between life expectancy and per capita income as
well as its growth for sample countries. Life expectancy exhibits positive relation with both nat-
ural logarithm of per capita income (LogGDP) and its growth. The positive relation between
life expectancy and per capita income seems to be more robust when compared to that
between life expectancy and growth.
To gain a further visual traction, Fig 4 depicts movement of LogGDP and life expectancy
for each individual country in the sample which again shows a positive relation between life
expectancy and per capita income.
Pairwise correlation. Before investigating the empirical relation between health and eco-
nomic growth, it is instructive to examine the pairwise correlation between explanatory vari-
ables to be used in the regression set-up which helps in checking whether the regression results
are distorted by perfect multicollinearity in regression or not. Table 3 illustrates that we can
rule out the evidence of perfect multicollinearity between explanatory variables except for a
high correlation (0.87), albeit not perfect, between the two components of human capital i.e.
life expectancy and schooling. We will take up this issue in panel GMM estimation.

OLS results
Before moving towards panel GMM estimation, we provide results corresponding to pooled
OLS (Col I, Table 4) which helps in illuminating how the coefficient estimates change by inclu-
sion of initial income and by accounting for endogeneity of the explanatory variables. Pooled
OLS results (Col I, Table 4) demonstrate that both life expectancy and schooling enter the
regression positively and are significant (p<0.01). This model explains 90% of the variation in
the logarithm of real per capita income (LogGDP). The other control variables such as open-
ness (OPEN) and government expenditure (GOVT_EXP) enter the regression positively,
while being statistically significant at 1% level. As discussed previously, this regression pro-
duces biased estimates as cross-sectional heterogeneity is not being accounted for in this. How-
ever, when we add fixed effects in regression framework (Col II of Table 4), new model
explains 95% of variation in real per capita income (LogGDP) and the standard errors get

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 Health and economic growth

Fig 3. Relationship between average life expectancy and per capita income, growth. a) Scatter plot between
LogGDP and Life Expectancy b) Scatter plot between Growth and Life Expectancy. LogGDP is the natural
logarithm of real per capita income (at PPP prices). Growth: Growth rate of real per capita income calculated as
difference of natural logarithm of real per capita income. Life Expectancy: Life Expectancy at Birth (in years). The data
presented here is ten-year averaged.
[Link]

smaller in the case of all explanatory variables. The measures of human capital, life expectancy
and schooling still exert positive and statistically significant influence on per capita income
(p<0.01), the coefficient size on life expectancy, however, is slightly diminished. We also
observe that inflation exerts significant and negative influence on per capita income and the
investment to GDP ratio (INVEST) is positively associated with per capita income (LogGDP).
In column III-IV of Table 4, we replaced the dependent variable to economic growth and
regressed it over the same set of explanatory variables as in column I-II. Observe that coeffi-
cient sign and statistical significance remains unchanged in most of the variables except
schooling which enters the pooled OLS and fixed effect regression negatively and government
expenditure no longer remains statistically significant(p>0.1). Even after adding fixed effects
in growth regression, the model explains only 33% variation in growth of real per capita
income as against 95% variation explained by these factors with per capita income as the
dependent variable. One striking observation is that schooling exerts negative and statistically
significant influence on growth of per capita income (Col III-IV, Table 4). The result seems to
be at odds with the conventional wisdom of positive association between human capital and
economic growth. However, such kind of anomalous observation had also been experienced
previously in which human capital proxied by schooling was found to be either statistically
insignificant or negative in growth regression [3, 19, 32]. As mentioned in Islam [19], the rea-
son lies in the theoretical variable H (human capital) employed in the production function and
the actual variable used in growth regression. As years of schooling may not fully account for
the quality of education, an imperfect proxy for education may, therefore, manifests in the
inappropriate coefficient sign or significance in growth regression.

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 Health and economic growth

Fig 4. Movement of life expectancy and per capita income: By sample country. The Data pertains to 17 advanced economies in the sample. LogGDP: Natural
logarithm of per capita GDP (at PPP prices).
[Link]

Table 3. Correlation matrix.

GROWTH LogGDP INFLATION INVEST GOVT_EXP OPEN LIFE EXPECTANCY SCHOOLING
GROWTH 1
LogGDP 0.1778 1
INFLATION -0.0132 -0.016 1
INVEST 0.3791 0.5985 0.0335 1
GOVT_EXP 0.1370 0.6301 0.0460 0.4076 1
OPEN -0.0468 0.1821 -0.0402 0.0111 0.1486 1
LIFE EXPECTANCY 0.2575 0.9062 0.0809 0.6875 0.6122 -0.0341 1
SCHOOLING 0.1567 0.9133 0.0077 0.5753 0.5635 0.0899 0.8711 1

Based on 10-year averaged data. GROWTH: growth rate of real GDP per capita (at PPP prices); LogGDP: natural logarithm of real GDP per capita at PPP prices;
INFLATION: calculated as difference in natural logarithm of CPI; INVEST: investment to GDP ratio; GOVT_EXP: government expenditure to GDP ratio; OPEN: total
merchandise trade to GDP ratio; LIFE EXPECTANCY: life expectancy at birth; SCHOOLING: average number of total years of schooling.

[Link]

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 Health and economic growth

Table 4. OLS results.

I II III IV
LogGDP as dependent variable Growth as dependent variable
INFLATION -0.6315 -0.9329��� -0.0686�� -0.0787��
(0.4623) (0.2655) (0.0279) (0.0330)
INVEST 0.0297 1.2533��� 0.1114��� 0.1278���
(0.5929) (0.4293) (0.0306) (0.0372)
GOVT_EXP 0.4040��� 0.5903��� 0.0005 0.0126
(0.1470) (0.1967) (0.0066) (0.0102)
OPEN 0.1883��� 0.2480��� -0.0040�� 0.0010
(0.0437) (0.0662) (0.0019) (0.0038)
LIFE EXPECTANCY 0.0317��� 0.0223��� 0.0006��� 0.0008���
(0.0053) (0.0037) (0.0002) (0.0003)
SCHOOLING 0.1261��� 0.1505��� -0.0028��� -0.0048���
(0.0140) (0.0151) (0.0007) (0.0009)
Intercept 5.6947��� 5.7208��� -0.0176�� -0.0262��
(0.2100) (0.1381) (0.0076) (0.0085)
Fixed Effects No Yes No Yes
No. of Obs. 185 185 Yes Yes
R2 0.90 0.95 0.27 0.33

Dependent variable is natural logarithm of real GDP per capita at PPP prices for column I-II and growth rate of real GDP per capita (at PPP prices) for column III-IV.
The explanatory variables are: INFLATION: difference in natural logarithm of CPI; INVEST: investment to GDP ratio; GOVT_EXP: government expenditure to GDP
ratio; LIFE EXPECTANCY: life expectancy at birth; OPEN: total merchandise trade to GDP ratio; SCHOOLING: average number of total years of schooling. Standard
errors are heteroscedasticity corrected robust errors and are presented in parentheses.
� �� ���
/ / denote statistical significance at 10/5/1 percent, respectively.

[Link]

Although not perfect, high correlation between schooling and life expectancy may be dis-
torting the coefficient estimates, the results corresponding to OLS excluding schooling are pre-
sented in S3 Table, which again demonstrates that life expectancy still exerts positive and
statistically significant influence on real per capita income as well as its growth.

Panel GMM results: Effect of health on per capita income

Results presented in Table 4 provide evidence of significant effect of population health on eco-
nomic growth. The estimates, however, cast few doubts on appropriateness of model specifica-
tion as rich countries are healthier than poorer ones i.e. there may be evidence of reverse
causality from income to health. Moreover, some of the effects picked up by the explanatory
variables may be the underlying ones of lagged income as economic growth may sustain due
to growth momentum. Therefore, appropriate model of economic growth must account for
the effects of lagged income as well as must take care of endogeneity issues that arise due to
reverse causality concerns. Therefore, we estimate the Eq (3) using first difference GMM in
which all the variables are considered endogenous. The model may suffer from instrument
proliferation issue, therefore, in order to reduce the instrument count, we use only two lags as
instruments and collapse the instruments as suggested by Roodman [31, 33].
Table 5 shows that lagged income is positively associated with current income which pro-
vides evidence of persistence in the dependent variable i.e. real income per capita (Col I-II).
The effect of life expectancy on per capita income is statistically insignificant when it is treated
as exogenous (p>0.1). However, the regression in which it is treated as endogenous, life expec-
tancy exerts positive and statistically significant (p<0.05) effect on per capita income,

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 Health and economic growth

schooling, however, is negative although statistically insignificant (p>0.1). We observe that

inflation exerts negative and statistically significant (p<0.01) effect on per capita income,
while the effect of trade openness is positive although significant only at 10% level. The model
diagnostic tests show that errors are serially uncorrelated of order 2 (p-value = 0.473). Hansen
test has p-value of 0.440 which implies that we fail to reject null hypothesis of no overidentify-
ing restrictions.
The model estimated using first difference GMM model and presented in column 1-II of
Table 5 may suffer from weak instrumental bias problems [18, 34]. Therefore, we also estimate
the growth regression using system GMM which provides lesser biased coefficient estimates
[18, 34, 35]. The system GMM approach [18] combines in a system, a regression in differences
with regression in levels with the aim that additional moment conditions would be generated
increasing the efficiency of resulting estimators. The idea of the system GMM is to estimate
level equation and first difference equation simultaneously, and suggests using lags as instru-
ment for differenced equation and differenced variables as instrument for the level equation.
Thus, additional moment conditions for second part of the system (level equation) are:

E½Dyit i ðmi þ εit Þ� ¼ 0 ð7Þ

E½DXit i ðmi þ εit Þ� ¼ 0 ð8Þ

Table 5. Panel GMM results with LogGDP as dependent variable.

First Difference GMM First Difference GMM (LE Endogenous) System GMM System GMM
(LE Exogenous) (LE Exogenous) (LE Endogenous)
INITIAL 0.8704��� 0.7229��� 0.8031��� 0.7422���
(0.0704) (0.0829) (0.0490) (0.0588)
INFLATION -0.8349��� -0.6772��� -0.7961��� -0.6773���
(0.2229) (0.1873) (0.1919) (0.1950)
INVEST 1.6645�� 0.5937 1.4314��� 1.0232��
(0.7005) (0.6453) (0.4738) (0.4878)
GOVT_EXP 0.2525 0.1392 0.1539 0.0325
(0.2966) (0.2099) (0.1678) (0.1615)
OPEN 0.1578�� 0.2827� 0.0698� 0.0815��
(0.0788) (0.1678) (0.0416) (0.0368)
LIFE EXPECTANCY 0.0039 0.0195�� 0.0014 0.0096��
(0.0064) (0.00997) (0.0041) (0.0040)
SCHOOLING -0.0034 -0.0129 0.0311 0.0244�
(0.0244) (0.0338) (0.0194) (0.0146)
No. of Obs. 166 166 185 185
No. of Instruments 13 14 13 22
Hansen Test p-value 0.420 0.440 0.395 0.544
AR (2) test p-value 0.339 0.473 0.660 0.892

Dependent variable LogGDP: natural logarithm of real GDP per capita at PPP prices. The explanatory variables are: INITIAL: natural logarithm of initial real per capita
income (at PPP prices) at period t-1; INFLATION: difference in natural logarithm of CPI; INVEST: investment to GDP ratio; GOVT_EXP: government expenditure to
GDP ratio; LIFE EXPECTANCY: life expectancy at birth; OPEN: total merchandise trade to GDP ratio; SCHOOLING: average number of total years of schooling.
Standard errors are heteroscedasticity corrected robust errors and presented in parentheses.
� �� ���
/ / denote statistical significance at 10/5/1 percent respectively. Null hypothesis of AR (2) test: errors are serially uncorrelated at order 2. Null hypothesis of Hansen
test: there are no overidentifying restrictions.

[Link]

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 Health and economic growth

In system GMM, additional moment conditions specified by Eqs (7) and (8) along with
those presented in Eqs (5) and (6) generate consistent and relatively more efficient estimates
compared to those obtained in the first difference GMM model.
We observe that in system GMM results (Col III-IV of Table 5), the standard errors are sub-
stantially reduced in most of the variables. With system GMM results too, we observe that life
expectancy exerts positive effect on per capita income when it is treated as endogenous which
is justifiable given the reverse causality concerns mentioned previously. In system GMM
results in which the life expectancy is considered endogenous, schooling also exerts positive
and significant influence on per capita income (p<0.1). The other explanatory variables such
as inflation, investment to GDP ratio (INVEST), openness and government expenditure to
GDP ratio (GOVT_EXP) have similar sign and statistical significance as observed before
(Table 4 and Col I-II of Table 5). Model specification tests also demonstrate that moment con-
ditions employed in the system GMM are appropriate–errors are uncorrelated of order 2 (AB
test p-value >0.1) and there are no overidentifying restrictions (Hansen test p-value > 0.1).

Panel GMM results: Effect of health on economic growth

In addition to investigating the effect of health on per capita income, we also examine the effect
of life expectancy on economic growth using panel GMM regression (Table 6). In regression
Eq (3), we replace LogGDP with growth in per capita income as the dependent variable. We

Table 6. Panel GMM results with growth as dependent variable.

First Difference GMM System GMM Estimation
INITIAL -0.0407��� -0.0296���
(0.0156) (0.0105)
INFLATION -0.0841� -0.0937���
(0.0491) (0.0334)
INVEST -0.0327 0.1280�
(0.0896) (0.0739)
GOVT_EXP 0.0248 0.0057
(0.0390) (0.0168)
OPEN 0.0568� 0.0090
(0.0337) (0.0058)
LIFE EXPECTANCY 0.0049�� 0.0018��
(0.0020) (0.0007)
SCHOOLING -0.0095 -0.0001
(0.0063) (0.0026)
No. of Obs. 166 185
No. of Instruments 14 22
Hansen Test p-value 0.321 0.443
AR (2) test p-value 0.301 0.086

Dependent variable: GROWTH: growth rate of real GDP per capita (at PPP prices) calculated as difference in natural
logarithm of real per capita income (at PPP prices). The explanatory variables are: INITIAL: natural logarithm of
initial real per capita income (at PPP prices) at time t-1; INFLATION: is calculated as difference in natural logarithm
of CPI; invest: investment to GDP ratio; GOVT_EXP: government expenditure to GDP ratio; LIFE EXPECTANCY:
life expectancy at birth; OPEN: total merchandise trade to GDP ratio; SCHOOLING: average number of total years of
schooling. Standard errors are heteroscedasticity corrected robust errors and are presented in parentheses.
� �� ���
/ / denote statistical significance at 10/5/1 percent, respectively. Null hypothesis of AR (2) test: errors are serially
uncorrelated at order 2. Null hypothesis of Hansen test: there are no overidentifying restrictions.

[Link]

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 Health and economic growth

Table 7. Panel GMM results excluding schooling.

First Difference GMM System GMM First Difference GMM System GMM
INITIAL 0.6194��� 0.8274��� -0.0596��� -0.0292���
(0.1299) (0.0395) (0.0197) (0.0067)
INFLATION -0.6256��� -0.7611��� -0.0914�� -0.0978��
(0.2343) (0.1716) (0.0463) (0.0390)
INVEST 0.2291 1.0962�� -0.0231 0.1397�
(0.8185) (0.4627) (0.1097) (0.0819)
GOVT_EXP 0.2133 0.0740 0.0276 0.0062
(0.2401) (0.1463) (0.0365) (0.0177)
OPEN 0.3376� 0.0856��� 0.0485 0.0096��
(0.1839) (0.0254) (0.0301) (0.0043)
LIFE EXPECTANCY 0.0239�� 0.0086�� 0.0037�� 0.0016��
(0.0113) (0.0039) (0.0017) (0.0008)
No. of Obs. 166 166 185 185
No. of Instruments 12 19 12 19
Hansen Test p-value 0.595 0.644 0.113 0.256
AR (2) test p-value 0.340 0.681 0.267 0.113

Dependent variable is natural logarithm of real GDP per capita at PPP prices for column I-II and growth rate of real GDP per capita (at PPP prices) for column III-IV.
The explanatory variables are: INITIAL: natural logarithm of initial real per capita income (at PPP prices); INFLATION: is calculated as difference in natural logarithm
of CPI, INVEST: investment to GDP ratio; GOVT_EXP: government expenditure to GDP ratio; LIFE EXPECTANCY: life expectancy at birth; OPEN: total merchandise
trade to GDP ratio. Standard errors are heteroscedasticity corrected robust errors and presented in parentheses.
� �� ���
/ / denote statistical significance at 10/5/1 percent, respectively. Null hypothesis of AR (2) test: errors are serially uncorrelated at order 2. Null hypothesis of Hansen
test: there are no overidentifying restrictions.

[Link]

obtain few results similar to those obtained with real per capita income (LogGDP) as the
dependent variable such as positive and significant effect of life expectancy (p<0.05) on eco-
nomic growth in both first difference and system GMM regression. Initial income per capita
(INITIAL) has negative effect on subsequent growth which is in accordance with convergence
hypothesis (Caselli et al [15]). Inflation has statistically significant negative influence on eco-
nomic growth with both GMM estimators and investment to GDP ratio is significant (p<0.1)
only in system GMM results (Col II, Table 6). In both the models, the model diagnostic tests
show that errors are serially uncorrelated of order 2 (p>0.1). We also fail to reject the null
hypothesis of no overidentifying restriction as the Hansen-J statistic has p-value greater than
0.10.

Panel GMM results: Effect of health excluding schooling

From Table 3, we observed high correlation between life expectancy and schooling. Therefore,
to extract more robust estimates of life expectancy on per capita income and economic growth,
we re-ran regression (3) using first difference and system GMM regression excluding school-
ing as one of the explanatory variables (Table 7). Comparing results of regression including
schooling (Tables 5 and 6) and with those after excluding it (Table 7), the coefficient on life
expectancy is still significant and there is not much change in its coefficient estimate. For
instance, in system GMM regression, the effect of life expectancy on per capita income changes
only from 0.0096 (Col IV, Table 5) to 0.0086 (Col II, Table 7) and on growth it changes mar-
ginally from 0.0018 (Col II, Table 6) to 0.0016 (Col IV, Table 7).

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 Health and economic growth

Table 8. Health expenditure and health status in country groupings.

Country Domestic general government health Out-of-pocket expenditure (% of Immunization, DPT (% of children Life expectancy at birth,
Groups expenditure (% of GDP) current health expenditure) ages 12–23 months) total (years)
Low Income 1.26 40.42 77.54 62.11
Lower middle 1.30 57.28 80.48 67.70
income
Upper middle 3.34 31.56 94.42 75.14
income
High income 7.82 13.50 95.76 80.50

Note: Data is from World Development Indicators: Database of World Bank

[Link]

Discussion
Through alternate model specifications and econometric procedures, we found that life expec-
tancy has positive and statistically significant effect on per capita income as well its growth.
Our regression results also indicate a strong role of endogeneity in driving standard results in
growth empirics [15]. What are the policy implications going forward and what developing
countries can learn from the experience of developed countries? Our results implicate a scope
of boosting economic growth through focussed policy attention on population health by
increased investments in healthcare systems. Secondly, as shown in Fig 1, there is very strong
correlation between life expectancy and other indicators of population health which implies
that till the time we get a better summary indicator of population health for which data is avail-
able for longer periods, a focus on boosting longevity seems to be an optimal strategy. From S2
Table, we notice that life expectancy ranges from the lows of 50.2 and 52.4 in Sierra Leone and
Angola, respectively, to 83.4 and 83.7 in Switzerland and Japan, respectively in 2015. Such low
levels of life expectancy imply high child mortality, lower adult survival rate and high preva-
lence of disease burden in working age-group which implies a significant loss to human capital
which significantly impairs its contribution to economic production. Moreover, low levels of
life expectancy lead to higher fertility and consequent population growth leading to further
thinning of existing resources per capita. Therefore, developing countries have a scope to
boost their income levels by focussing on population health. This raises a question: how to
boost population health? What are the challenges to healthcare systems in advanced economies
and low-resource economies? In terms of boosting longevity, reduction in child mortality has
played a crucial role in the past [36] and is expected to provide further gains in future for low-
and low-middle income economies. Moreover, many of the diseases that account for prema-
ture deaths as well as a cause of morbidity are preventable as well as treatable with available
low-cost interventions [37]. For instance, 19.5 million children under the age 1 did not receive
the three recommended doses of Diphtheria, Tetanus and Pertussis (DTP3) in 2016, and 20.8
million children below the age 1 didn’t receive a single dose of measles-containing vaccine
[38]. Lastly, if we compare general government expenditure on health (Table 8) it is found to
be significantly lower in poor economies. Moreover, in the light of stagnating development
assistance for health (DAH) to poor economies, there is going to be significant pressure on
already constrained public resources in poor economies [39].
Table 8 also demonstrates that in the absence of insurance cover, a large chunk of health
expenditure is incurred as out-of-pocket expenditures (OOP) which further pushes people
below the poverty line (see Fig 5). Health expenditure is thus a significant drain on poor house-
hold’s resources and significantly impairs their human capital, which has further negative
bearing on economic growth. In the light of high OOP expenditure in low and lower-middle

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 Health and economic growth

Fig 5. Relationship between income, life expectancy and OOP. a) Scatter plot between LogGDP and OOP b)
Scatter plot between LE and OOP. The data pertains to 193 countries and is procured from World Development
Indicators (WDI) database of World Bank. LogGDP: Natural Logarithm of real GDP per capita at constant 2010 USD.
LE: Life Expectancy at Birth. OOP: Out-of-pocket expenditure as percentage of current health expenditure (CHE).
Data of all variables pertains to 2015 and is procured from World Development Indicators (WDI) database of World
Bank.
[Link]

income economies, the access to universal health coverage (UHC) is felt most urgently which
is also emphasised in Sustainable Development Goal 3.8 [40].
Next question that demands urgent attention is: will life expectancy gains continue to per-
sist and continue to provide economic gains forever? The answer to this question seems to be
not clear as endogenous growth theory involving AK type of production function assume that
investments in human capital continues to provide positive results forever by boosting produc-
tivity (A). However, economic rationale of diminishing marginal returns suggests that
improvements in human capital may eventually lead to non-significant economic gains in
future. Now, advanced economies which have witnessed substantial gains in life expectancy
over last 140 years are standing on the verge of stagnating gains as most of health gains due to
reduction in mortality from communicable causes have almost vanished and their place has
increasingly been taken up by non-communicable diseases such as cancer, cardiovascular dis-
eases and neurological disorders etc. [41]. The signs of non-significant gains in longevity may
already be visible in developed countries (Fig 4). Secondly, there may be evidence of diminish-
ing marginal returns to improved longevity evidenced by Global Burden of Disease study 2016
[42, 43], which shows that longer lives may not be translating into healthy longer lives. This is
because we may have found solutions to many of leading communicable causes of death but
the burden of non-communicable diseases such as cardiovascular diseases, diabetes, and neo-
plasms is increasing alongwith the burden of disorders such as neurological disorders, muscu-
loskeletal disorders and substance abuse disorders, the later may not be claiming lives but are
responsible for a surge in burden due to disability. This is particularly challenging as much of
this burden falls on the working age group (15–64) causing a significant loss to human capital.

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 Health and economic growth

To summarise, the priority of public health policy in developing countries must be on boosting
longevity, the advanced economies, on the other hand, must focus on ensuring healthier life to
their long-living populations.

Limitations
The main limitation of this paper is that comprehensive macroeconomic data spanning over a
century is available only for a subset of advanced economies. Although, the experience of
advanced economies can shed some light on health-growth nexus and has policy implications
for developing countries too, still, availability of data for developing countries for long time
series is expected to illuminate health-growth relationship in a more robust manner. Second,
although life expectancy is strongly correlated with other indicators of population health, still
it is not a perfect measure of population health [9].

Concluding remarks
Sustainable Development Goal 3 seeks to ensure healthy lives and promote well-being for all at
all ages. In this paper, we investigate whether population health has causal effect on per capita
income and its growth or not, using an unbalanced panel of 17 advanced economies for the
period 1870–2013. We use life expectancy at birth as a proxy for population health and control
for endogeneity issues using panel generalised method of moments (GMM) technique [16–
18]. With alternate model specifications, we demonstrated that population health has positive
and significant effect on both real income per capita as well as its growth. In addition to life
expectancy, other constituent of human capital, schooling is also positively associated with per
capita income. Investment has positive effect on growth which is consistent with the findings
of existing literature. Government expenditure, however, has either statistically insignificant
(p>0.1) or positive effect on per capita income and growth which seems to be at odds with the
hypothesis of crowding out effect of government expenditure on real investments and hence,
must exerts negative effect on growth. Our results may be driven by the positive effect of gov-
ernment expenditure during great depression and recessionary times as the data-set employed
in this study contains many of the recessionary episodes. This observation cannot be general-
ised, however, and the dynamics of government’s size and its implications on real investments
and growth demand rigorous empirical scrutiny by focussing on specific components of gov-
ernment expenditure. Inflation exerts negative and statistically significant influence on both
per capita income and its growth and seems to be consistent with the existing literature [44].
Regarding population health, our results are consistent with previous results. Our results, how-
ever, seem to be more robust as these are based on 143 years of data, appropriate econometric
specification and controlling for majority of macroeconomic determinants of growth. The
probable channels through which life expectancy is envisaged to foster growth is through capi-
tal accumulation and boosting productivity of existing capital. In general, improved life expec-
tancy leads to elongation of number of working years, also evident from worldwide debates on
increasing the age of retirement. Second, majority of gains in life expectancy can be attributed
to reductions in child as well as adult mortality; providing for greater number of working years
and hence higher level of savings (and investments), which further propels the economic
growth. This longevity-saving-growth channel has been identified as a source of East Asian
growth miracle [45–46]. Health itself is not only a part of human capital but also contributes to
human capita such as education [47]. Improved health (measured using life expectancy) allows
the working population to be more productive in terms of new ideas and innovations. This
further leads to enhanced productivity of the physical capital when employed by more skilful
managers in the economy. Subsequently, longer living population invest more in human

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 Health and economic growth

capital such as education as it expects to live greater number of years [48] leading to a virtuous
cycle of improved productivity and economic growth. The empirical investigation of channels
through which population health affects per capita income and growth may be an important
agenda for future research.
Lastly, life expectancy may have provided gains in per capita income in the past, however,
due to elevating burden of NCDs, the disability adjusted life years (DALYs) burden–sum of
years of life lost (YLL) due to premature death and years lived with disability (YLD) due to
injury or illness–which was earlier used to be dominated by YLLs is now increasingly getting
dominated by lived with disability (YLD) even in developing nations [49]. Moreover, the
increasing burden of old age diseases ranging from cancers to neurological diseases as well as
life style related diseases is exacting a toll on not only elderly population but also on working
age-group [37]. How health system can tackle these challenges going forward? This is particu-
larly a challenging problem for poor countries whose health system are stressed due to twin
burden of communicable diseases as well as rising burden of non-communicable diseases such
as cardiovascular disorders and cancers. Going forward, an analysis of economic burden or
loss in GDP due to these diseases may be an agenda for future research.

Supporting information
S1 Table. Key data for sample countries. Data Source: Based on authors’ calculation on data
reported in the paper.
(DOCX)
S2 Table. Key indicators of population health for 183 countries. LE: Life Expectancy at
Birth (in years); LE60: Life Expectancy at the age 60 (in years); HALE: Healthy Life Expectancy
at Birth (in years); HALE60: Healthy Life Expectancy at the age 60 (in years); AMR: Adult
Mortality Rate (per 100,000 population); U5MR: Under 5 Mortality Rate (per 1000 livebirths).
(DOCX)
S3 Table. Pooled OLS results excluding schooling as explanatory variable. Dependent vari-
able is natural logarithm of real GDP per capita at PPP prices for column I-II and growth rate
of real GDP per capita (at PPP prices) for column III-IV. The explanatory variables are:
INFLATION: difference in natural logarithm of CPI; INVEST: investment to GDP ratio;
GOVT_EXP: government expenditure to GDP ratio; LIFE EXPECTANCY: life expectancy at
birth; OPEN: total merchandise trade to GDP ratio; SCHOOLING: average number of total
years of schooling. Standard errors are heteroscedasticity corrected robust errors and are pre-
sented in parentheses. � /�� /��� denote statistical significance at 10/5/1 percent, respectively.
(DOCX)
S4 Table. Pooled OLS results excluding life expectancy as explanatory variable. Dependent
variable is natural logarithm of real GDP per capita at PPP prices for column I-II and growth
rate of real GDP per capita (at PPP prices) for column III-IV. The explanatory variables are:
INFLATION: difference in natural logarithm of CPI; INVEST: investment to GDP ratio;
GOVT_EXP: government expenditure to GDP ratio; OPEN: total merchandise trade to GDP
ratio; SCHOOLING: average number of total years of schooling. Standard errors are hetero-
scedasticity corrected robust errors and are presented in parentheses. � /�� /��� denote statistical
significance at 10/5/1 percent, respectively.
(DOCX)
S5 Table. Panel GMM results excluding schooling as explanatory variable. Dependent vari-
able is natural logarithm of real GDP per capita at PPP prices for column I-II and growth rate

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 Health and economic growth

of real GDP per capita (at PPP prices) for column III-IV. The explanatory variables are:
INITIAL: natural logarithm of initial real per capita income (at PPP prices); INFLATION: cal-
culated as difference in natural logarithm of CPI; INVEST: investment to GDP ratio; GOV-
T_EXP: government expenditure to GDP ratio; LIFE EXPECTANCY: life expectancy at birth;
OPEN: total merchandise trade to GDP ratio. Standard errors are heteroscedasticity corrected
robust errors and are presented in parentheses. � /�� /��� denote statistical significance at 10/5/1
percent, respectively. Null hypothesis of AR (2) test: errors are serially uncorrelated of order 2.
Null hypothesis of Hansen test: there are no overidentifying restrictions.
(DOCX)

Acknowledgments
I thank the editor and two anonymous referees for comments that greatly improved the paper.
I also want to thank Òscar Jordà, Moritz Schularik and Alan M. Taylor for providing macro-
economic history database in public domain which was quite critical in this study.

Author Contributions
Conceptualization: Rajesh Sharma.
Data curation: Rajesh Sharma.
Formal analysis: Rajesh Sharma.
Funding acquisition: Rajesh Sharma.
Investigation: Rajesh Sharma.
Methodology: Rajesh Sharma.
Project administration: Rajesh Sharma.
Resources: Rajesh Sharma.
Software: Rajesh Sharma.
Supervision: Rajesh Sharma.
Validation: Rajesh Sharma.
Visualization: Rajesh Sharma.
Writing – original draft: Rajesh Sharma.
Writing – review & editing: Rajesh Sharma.

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