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Econ315 Exam 3 NotesProfessor Stefania ScandizzoUniversity of MarylandHEALTH and DEVELOPMENTHuman capital Education  HealthHDI Standard of living (GDP/pop)  Access to knowledge (education)  Long and healthy lifeHow to measure health?- We usually measure absence of healtho Morbidity (diseases)o Mortality (deaths)Life Expectancy (LE)- Synthetic indicator- averageHealth adjusted life expectancy (HALE)- LE – years with disability (adjusted for severity)- HALE – lowers life expectancy much more in poor countries than in rich countrieso More diseaseo Most disease strike the youngEpidemiological Transition- How shifts in disease patterns are associated with shifts in health and demographic patterns1. Age of pestilence and famine (covers most of human history)a. Impatient environmental problems:i. lack of access to clean waterii. poor housing and sanitation2. Age of receding pandemicsa. Infectious diseases and famines decreasei. People live longer “old age” diseases (heart disease, cancer)3. Age of degenerative and human made diseasesa. Mortality rates fallb. Chronic diseases increase (diabetes, hypertension, heart problems)c. Human-made diseases increase (diseases relating to smoking, alcohol, environmental pollution) - What causes improvements in health?- Rising income- Advances in agriculture and food distribution- Public health measureso Watero Sanitationo Food regulation****MEDICAL DISCOVERIES- EducationWhat is the relationship between health and economic growth?- Strong positive correlation BUT what about CAUSALITY?- Health  Economic growth?1. How does economic growth (and higher incomes) affect health?- MICRO (household)  spending on health increasesa. Directly:i. More doctor visitsii. Medicineiii. Better food (nutrition increases)b. Indirectly:i. Better housingii. Better access to clean water and sanitation- MACRO (society)c. GDP (Y) increasesspending on health increasesd. Hospitals and clinics increasee. More/better doctors and nursesf. Public health campaignsi. Insect sprayingii. Vaccinationsiii. Information campaigns- Not only is level of income important for health, but distribution of income is important as well.- For given level of income, the more equal the distribution of income, the better the aggregatehealth outcome.4/28 HEALTH and DEVELOPMENT continuedHealth  Economic growthRising income increase in health is not enough!- Critical Diseases1. HIV/AIDSPublic Health Campaign Education2. Malariaa. No existing vaccine!b. Insecticide-treated bed netsc. DDT Pros: Cheap and effective Cons: causes extensive environmental damage!3. Tuberculosis (TB)a. Treatable but very costlyb. HOUSE: TB or not TB- What works? What can be done to improve health outcomes in developing countries?o Increase incomeo Role of governmento STRONG LEADERSHIPo Technological solution Drugs, vaccineo Affordable delivery systemLE increases lifetime income increasessavings increaseinvestment increasesTwo main problems1. Many diseases that are treatable, curable, or preventable still claim many lives in developing worlda. What can be done?2. Some diseases don’t yet have the right meds or vaccines, but since they are typical of low income countries, incentives for pharmaceutical companies are insufficientCritical diseases:1. HIV/AIDSa. Africa leading caus of death; South Africa hardest hiti. Unlike other infectious diseases, HIV hits young adults1. Working population decreases  economic activity decreasesii. Treatment exists BUT costlyb. Late 1990’s, group of large pharmaceutical companies sues South Africa for patent infringementi. Global outeryii. In 2000 two things changed:1. Foreign aid increased, aid from rich countries to poor to fight HIV/AIDS2. Price of AIDS drugs decreases some generics allowed, pharmaceutical companies practice price discrimination, patents expirea. But still less than half of these infected w/ HIV, in poor countries take AIDS drugsb. Also financial crisis (2009) foreign aid decreases2. Malaria no existing vaccinea. Insecticide-treated bed netsb. DDT3. Tuberculosis (TB)a. Treatable but very costly4/30 SAVINGS and INVESTMENT1. Y = F(K,L)2. S = sY3. S = I4. Change in K = I – dk5. Change in L = hL Savings- Domestico Governmento Private Households CorporateSavings rate = S/GDPInvestment rate = I/GDPResource Gap = (I-S)/GDPHow to promote govt savings increase taxes- 3 main problems associated w/ the increase in taxes1. high poverty levels, low disposable income (subsistence levels)  tax base very low2. need to make sure not to decrease incentives to businesses3. cost of collectiona. an increase in taxes does not mean more govt spendingi. usually as taxes increase, govt expenditure increasesb. govt savings does not necessarily translate into an increase in domestic savingsi. as govt savings increase, private savings decrease- Empirical question: How much does increase in govt savings cause decrease in private savingso Ricardian Equivalence: one to one relationship  if one goes up, the other goes down one (NO empirical evidence so not true)o Empirical evidence tells us that govt savings increases private savings decrease but not one to oneo  substitution effect but incomplete crowding out- How can govt encourage private investment?1. Macro and political stability2. Infrastructure means lower costs to businessesa. Ex. ports, roads, electricity3. Trade policy and economic openness4. Institutions and governance- Challenges to govt in developing countries:o Increase investment- Foreigno Official (foreign aid) Grants Loano Private Debt Equity (includes FDI)o More productive investment5/2 FOREIGN DIRECT INVESTMENTPortfolio investment: Short term financial capital flows. Very volatile!FDI (foreign direct investment): Long-term investment in which non-resident entity (ex. foreign multinational firm) exerts managerial CONTROL.Potential benefits of FDI:1. Generates employment, BUTa. Capital intensive industries don’t create that many jobsb. MNC (multinational corporations) pay low wages and harsh working conditions(empirical evidence seems to prove otherwise)2. & 3. Access to world markets and entry into global production chains3. Transfer of technology, skills and ideas *****most important benefit*****a. Productivity increasesb. Costs decreasec. SPILLOVERS4. Training of workers and managersa. Human capital increasesNegative effects of FDI:1. Negative spilloversa. Ex. pollution


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UMD ECON 315 - Exam 3

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