Econ315 Exam 3 Notes Professor Stefania Scandizzo University of Maryland HEALTH and DEVELOPMENT Human capital Education Health HDI Standard of living GDP pop Access to knowledge education Long and healthy life How to measure health We usually measure absence of health o Morbidity diseases o Mortality deaths Life Expectancy LE Synthetic indicator average Health adjusted life expectancy HALE o More disease o Most disease strike the young Epidemiological Transition LE years with disability adjusted for severity HALE lowers life expectancy much more in poor countries than in rich countries How shifts in disease patterns are associated with shifts in health and demographic patterns 1 Age of pestilence and famine covers most of human history a Impatient environmental problems lack of access to clean water i ii poor housing and sanitation 2 Age of receding pandemics a Infectious diseases and famines decrease 3 Age of degenerative and human made diseases i People live longer old age diseases heart disease cancer a Mortality rates fall b 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 measures o Water o o Sanitation Food regulation MEDICAL DISCOVERIES Education What 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 increases a Directly i More doctor visits ii Medicine iii Better food nutrition increases b Indirectly MACRO society i Better housing ii Better access to clean water and sanitation c GDP Y increases spending on health increases d Hospitals and clinics increase e More better doctors and nurses f Public health campaigns Insect spraying i ii Vaccinations iii 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 aggregate health outcome 4 28 HEALTH and DEVELOPMENT continued Health Economic growth Rising income increase in health is not enough Critical Diseases Public Health Campaign Education 1 HIV AIDS 2 Malaria 3 Tuberculosis TB a Treatable but very costly b HOUSE TB or not TB Increase income o o Role of government o o STRONG LEADERSHIP Technological solution Drugs vaccine o Affordable delivery system a No existing vaccine b c DDT Pros Cheap and effective Cons causes extensive environmental damage Insecticide treated bed nets What works What can be done to improve health outcomes in developing countries LE increases lifetime income increases savings increase investment increases Two main problems 1 Many diseases that are treatable curable or preventable still claim many lives in developing world a What can be done Critical diseases 1 HIV AIDS 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 insufficient a Africa leading caus of death South Africa hardest hit i Unlike other infectious diseases HIV hits young adults 1 Working population decreases economic activity decreases b Late 1990 s group of large pharmaceutical companies sues South Africa for patent ii Treatment exists BUT costly infringement i Global outery ii In 2000 two things changed 1 Foreign aid increased aid from rich countries to poor to fight HIV AIDS 2 Price of AIDS drugs decreases some generics allowed pharmaceutical companies practice price discrimination patents expire a But still less than half of these infected w HIV in poor countries take AIDS drugs b Also financial crisis 2009 foreign aid decreases 2 Malaria no existing vaccine Insecticide treated bed nets a b DDT 3 Tuberculosis TB a Treatable but very costly 4 30 SAVINGS and INVESTMENT 1 Y F K L S sY 2 3 S I 4 Change in K I dk 5 Change in L hL Savings Domestic o Government Private o Households Corporate Savings rate S GDP Investment rate I GDP Resource Gap I S GDP How to promote govt savings increase taxes Foreign o Official foreign aid Grants Loan o Private Debt Equity includes FDI 3 main problems associated w the increase in taxes 1 high poverty levels low disposable income subsistence levels tax base very low 2 need to make sure not to decrease incentives to businesses 3 cost of collection a an increase in taxes does not mean more govt spending i usually as taxes increase govt expenditure increases b govt savings does not necessarily translate into an increase in domestic savings i as govt savings increase private savings decrease Empirical question How much does increase in govt savings cause decrease in private savings o Ricardian Equivalence one to one relationship if one goes up the other goes o down one NO empirical evidence so not true Empirical evidence tells us that govt savings increases private savings decrease but not one to one o substitution effect but incomplete crowding out How can govt encourage private investment 1 Macro and political stability 2 Infrastructure means lower costs to businesses a Ex ports roads electricity 3 Trade policy and economic openness 4 Institutions and governance Challenges to govt in developing countries o Increase investment o More productive investment 5 2 FOREIGN DIRECT INVESTMENT Portfolio 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 BUT a Capital intensive industries don t create that many jobs b 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 chains 3 Transfer of technology skills and ideas most important benefit a Productivity increases b Costs decrease SPILLOVERS c 4 Training of workers and managers a Human capital increases Negative effects of FDI 1 Negative spillovers a Ex pollution and environmental damage 2 Loss of control 3 Misallocation of resources if FDI very protected Classify FDI by activity 1 Natural resources oil minerals 2 Manufactures and services aimed at domestic host market i Ex processed food apparel banking telecommunications 3