Home Business & Economics A contribution to the empirics of welfare growth
Article
Licensed
Unlicensed Requires Authentication

A contribution to the empirics of welfare growth

  • Konstantinos Vrachimis and Marios Zachariadis EMAIL logo
Published/Copyright: April 9, 2013
The B.E. Journal of Macroeconomics
From the journal The B.E. Journal of Macroeconomics Volume 13 Issue 1

Abstract

This paper compares the determinants of economic growth and ‘full’ income growth. Our main result is that determinants may differ or have very different impact on welfare outcomes as compared to economic outcomes. Human capital plays a bigger role in determining the former, so that policies targeting human capital might have a greater effect on the welfare of societies than one would think by looking at their impact on economic growth alone. The same goes for health institutions and a number of other factors. Initial income has a greater impact on ‘full’ income growth than on real income per capita growth, implying even faster convergence than previously found, after conditioning for economic, health-related, institutions-related, and geographic cross-country differences. Overall, we strongly reject the hypothesis that the coefficient estimates for the impact of our set of explanatory variables on ‘full’ income growth is the same as for income growth. We conclude that there exist systematic differences for the impact of a number of factors on economic versus welfare growth outcomes.

Keywords: convergence; economic growth; full income; welfare; JEL Classification: O50; O11; I0
Corresponding author: Marios Zachariadis, Department of Economics, University of Cyprus, 1678 Nicosia, Cyprus, Phone: +357 22893712, Fax: +357-22892432, e-mail:
  1. 1

    We note that although these account for improvements in home-produced or non-market health in a country, they still leave out other factors that can affect welfare like the value of leisure and other non-market goods, much like real GDP per capita.

  2. 2

    We have 72 countries in common with Becker et al. (2005) plus Jordan and Tunisia. The main difference betweem our 73-country sample and their 96-country sample is that they have twice as many Sub-Saharan African countries (32 as compared to 16). Our sample is smaller because some countries are not available for our much larger set of explanatory variables as compared to the bivariate relation studied in Becker et al. (2005).

  3. 3

    The value of life expectancy gains in annual income there was negative, reflecting the significant reduction in life expectancy in large countries like South Africa, Zambia and Zimbabwe. These are the only countries with a fall in longevity and are responsible for the losses in Table 1, which reports population weighted measures as in Becker et al. (2005). Excluding these, the value of life expectancy gains becomes positive.

  4. 4

    We follow the literature in specifying the typical value of 0.05 for δ+g consistent with a depreciation rate of 0.03 and an exogenous long-run trend of 0.02 for g. The rate of population growth, ni, is the average value over the relevant time period for each country.

  5. 5

    Ricci and Zachariadis (2013) investigate an external channel via which education affects health outcomes.

  6. 6

    Countries experiencing high levels of investment in health are expected to have a healthier labor force with increased longevity and as a result produce more output.

  7. 7

    The correlation coefficient of the number of physicians with the number of hospital beds per 1000 persons is 73%, 88% with improved water conditions and –77% with malaria prevalence.

  8. 8

    As the distinction between ‘full’ income growth and income growth becomes more evident the longer the time interval over which these are computed, we consider growth rates over the whole period 1960–2003 to render the comparisons we undertake more meaningful.

  9. 9

    For example, longer life expectancy could lead to more education subsequently which would suggest an endogeneity bias, especially when explaining welfare growth over the period with (contemporaneous) educational outcomes over the same period.

  10. 10

    We test for the equality of the coefficients or group of coefficients using the results from the income growth and ‘full’ income growth regressions along with the associated robust variance-covariance matrix.

  11. 11

    The correlation between physician numbers and secondary education attainment is 0.8. This collinearity reduces the estimated effect of education when physicians availability is added. We also note the typically insignificant impact of physicians, controlling for secondary education.

  12. 12

    Using predetermined lagged averaged values of the explanatory variables to instrument for their period-averages, estimated coefficients are qualitatively similar but typically stronger than those for Table 3. The main variables have the expected effect and the impact on welfare growth is always statistically greater than the impact on economic growth for govenrment stability. The latter finding suggests that while conducive to a good economic environment, the stability and continuity of governance can have an even bigger effect on welfare when one accounts for its impact on life expectancy, i.e., the willingness and ability of governments to provide an uninterrupted flow of health-related inputs and information pertaining to long-run maximization of society’s overall welfare, is likely related to the absence of discontinuities in governance that may disrupt the provision of health-related service inputs and the planning and construction of public infrastructure in the long-run.

  13. 13

    For the set of estimates in Table 3, maximum temperature has a surprising positive significant impact on both income and ‘full’ income growth, while maximum afternoon humidity and oil matter for ‘full’ income growth.

  14. 14

    However, the sample (ranging from 26 to 19 Developed countries across different specifications) is far too small for the relatively large set of explanatory variables we consider so that any inference thus made would be problematic. We thus refrain from presenting these estimates in a separate table here.

  15. 15

    In the same spirit, Acemoglu and Johnson (2007) acknowledge ‘health interventions have considerably improved overall welfare’ (p. 4) even if they ‘exclude any positive effects of life expectancy on GDP per capita’ (p. 3).

We thank participants at the 2008 Jerusalem Summer School in Economic Growth at Hebrew University and the 2010 Royal Economic Society Annual Conference at the University of Surrey for comments and suggestions. The paper does not necessarily reflect the views of the Cooperative Central Bank of Cyprus.

References

Acemoglu, D. and S. Johnson (2007). Disease and Development: The Effect of Life Expectancy on Economic Growth. Journal of Political Economy, 115:925–85.Search in Google Scholar

Acemoglu, D., S. Johnson, and J. A. Robinson (2001). The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review, 91(5):1369–401.Search in Google Scholar

Anderson, G. (2005). Life Expectancy and Economic Welfare: The Example of Africa in the 1990s. Review of Income and Wealth, 51(3):455–68.Search in Google Scholar

Anderson, G., I. Crawford, and A. Leicester (2011). Welfare Rankings from Multivariate Data, a Nonparametric Approach. Journal of Public Economics, 95:247–52.Search in Google Scholar

Arora, S. (2002). Health, Human Productivity, and Long-term Economic Growth. The Journal of Economic History, 61(3):699–749.Search in Google Scholar

Barro, R. J. and J.-W. Lee (2001). International Data on Educational Attainment: Updates and Implications. Oxford Economic Papers, 53:541–63.Search in Google Scholar

Becker, G. S. (1975). Human Capital. 2nd ed. New York: Columbia University Press.Search in Google Scholar

Becker, G. S. (2007). Health as Human Capital: Synthesis and Extensions. Oxford Economic Papers, 59:379–410.Search in Google Scholar

Becker, G. S., T. J. Philipson, and R. S. Soares (2005). The Quantity and Quality of Life and the Evolution of World Income Inequality. American Economic Review, 95:277–91.Search in Google Scholar

Decancq, K., A. Decoster, and E. Schokkaert (2009). The Evolution of World Inequality in Well-being. World Development, 37(1):11–25.Search in Google Scholar

Evans, D. B., A. Tandom, C. J. L. Murray, and J. A. Lauer (2001). Comparative Efficiency of National Health Systems: Cross-National Econometric Analysis. British Medical Journal, 323(7308):307–10.Search in Google Scholar

Fleurbaey, M. (2009). Beyond GDP: The Quest for a Measure of Social Welfare. Journal of Economic Literature, 47:1029–75.Search in Google Scholar

Fleurbaey, M. and G. Gaulier (2009). International Comparisons of Living Standards by Equivalent Incomes. Scandinavian Journal of Economics, 111(3):597–624.Search in Google Scholar

Fogel, R. (1994). Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy. American Economic Review, 84:369–95.Search in Google Scholar

Grossman, M. (1972). On the Concept of Health Capital and the Demand for Health. Journal of Political Economy, 80:223–55.Search in Google Scholar

Heckman, James J. and Peter Klenow (1998). Human Capital Policy. In Policies to Promote Capital Formation, edited by Michael Boskin. Stanford, CA: Hoover Institution.Search in Google Scholar

Heston, A., R. Summers, and B. Aten (2006). Penn World Tables Version 6.2, Center for International Comparisons of Production, Income and Prices, University of Pennsylvania.Search in Google Scholar

International Country Risk Guide (2008). New York, NY: The PRS Group.Search in Google Scholar

Jones, C. I. and P. J. Klenow (2010). Beyond GDP? Welfare across Countries and Time. Working Paper 16352, National Bureau of Economic Research.10.3386/w16352Search in Google Scholar

Kaufmann, D., A. Kraay, and M. Mastruzzi (2005). Governance Matters IV: Governance Indicators for 1996–2004. The World Bank, Mimeo.10.1596/1813-9450-3630Search in Google Scholar

Kenkel, D. (1991). Health Behavior, Health Knowledge and Schooling. Journal of Political Economy, 99(2):285–305.Search in Google Scholar

Krueger, A. B. and M. Lindahl (2001). Education for Growth: Why and For Whom? Journal of Economic Literature, 39(4):1101–36.10.1257/jel.39.4.1101Search in Google Scholar

Mankiw, N. G., D. Romer, and D. N. Weil (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107(2):407–37.Search in Google Scholar

Nordhaus, W. D. (2002). The Health of Nations: The Contribution of Improved Health to Living Standards. Working Paper 8818, National Bureau of Economic Research.10.3386/w8818Search in Google Scholar

Papageorgiou, C., A. Savvides, and M. Zachariadis (2007). International Medical Technology Diffusion. Journal of International Economics, 72(2):409–27.Search in Google Scholar

Parker, P. M. (1997). National Cultures of the World: A Statistical Reference. Cross-Cultural Statistical Encyclopedia of the World, Vol. 4. Westport, CT: Greenwood Press.Search in Google Scholar

Preston, S. H. (1975). The Changing Relation Between Mortality and Level of Economic Development. Population Studies 29:231–48.Search in Google Scholar

Preston, S. H. (1980). Causes and Consequences of Mortality Declines in Less Developed Countries during the Twentieth Century. In Richard A. Easterlin (ed.), Population and Economic Change in Developing Countries, National Bureau of Economic Research. Chicago: The University of Chicago Press, pp. 289–341.Search in Google Scholar

Preston, S. H. (1996). Population Studies of Mortality. Population Studies, 50:525–36.Search in Google Scholar

Pritchett, L. and L. H. Summers (1996). Wealthier is Healthier. The Journal of Human Resources, 31(4):841–68.Search in Google Scholar

Ricci, F. and M. Zachariadis (2013). Education Externalities on Longevity. Economica.10.1111/ecca.12013Search in Google Scholar

Rodrik, D., A. Subramanian, and F. Trebbi (2004). Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development. Journal of Economic Growth, 9(2):131–65.Search in Google Scholar

Sachs, J. D. (2003). Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income. Working Paper 9490, National Bureau of Economic Research.10.3386/w9490Search in Google Scholar

Soares, R. (2007a). On the Determinants of Mortality Reductions in the Developing World. Population and Development Review, 33(2):247–87.10.1111/j.1728-4457.2007.00169.xSearch in Google Scholar

Soares, R. (2007b). Health and the Evolution of Welfare Across Brazilian Municipalities. Journal of Development Economics, 84(2):590–608.10.1016/j.jdeveco.2007.02.002Search in Google Scholar

Soares, R. (2009). Life Expectancy and Welfare in Latin America and the Caribbean. Health Economics 18:S37–54.Search in Google Scholar

Topel, R. (1999). Labor Markets and Economic Growth. Handbook of Labor Economics, Ch. 44, 1(3):2943–84.Search in Google Scholar

Weil, D. (2007). Accounting for the Effect of Health on Economic Growth. Quarterly Journal of Economics, 122(3):1265–306.Search in Google Scholar

Woodruff, C. (2006). Measuring Institutions. In International Handbook on the Economics of Corruption, Vol. I, Chapter 3, edited by Susan Rose-Ackerman, 105–27. Edward Elgar Publishing.10.4337/9781847203106.00009Search in Google Scholar

World Bank (2008). World Development Indicators. Washington, DC: World Bank.Search in Google Scholar

World Health Organization (2000). Health Systems Improving Performance, World Health Report 2000. Geneva, Switzerland.Search in Google Scholar

World Health Organization (2007). Global Health Atlas. Geneva, Switzerland.Search in Google Scholar

Published Online: 2013-04-09
Published in Print: 2013-01-01

©2013 by Walter de Gruyter Berlin Boston

Articles in the same Issue

  1. Masthead
  2. Masthead
  3. Advances
  4. How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation?
  5. Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium
  6. Overeducation and skill-biased technical change
  7. Strategic wage bargaining, labor market volatility, and persistence
  8. Households’ uncertainty about Medicare policy
  9. Contributions
  10. Deconstructing shocks and persistence in OECD real exchange rates1)
  11. A contribution to the empirics of welfare growth
  12. Development accounting with wedges: the experience of six European countries
  13. Implementation cycles, growth and the labor market
  14. International technology adoption, R&D, and productivity growth
  15. Bequest taxes, donations, and house prices
  16. Business cycle accounting of the BRIC economies
  17. Privately optimal severance pay
  18. Small business loan guarantees as insurance against aggregate risks
  19. Output growth and unexpected government expenditures
  20. International business cycles and remittance flows
  21. Effects of productivity shocks on hours worked: UK evidence
  22. A prior predictive analysis of the effects of Loss Aversion/Narrow Framing in a macroeconomic model for asset pricing
  23. Exchange rate pass-through and fiscal multipliers
  24. Credit demand, credit supply, and economic activity
  25. Distortions, structural transformation and the Europe-US income gap
  26. Monetary policy shocks and real commodity prices
  27. Topics
  28. News-driven international business cycles
  29. Business cycle dynamics across the US states
  30. Required reserves as a credit policy tool
  31. The macroeconomic effects of the 35-h workweek regulation in France
  32. Productivity and resource misallocation in Latin America1)
  33. Information and communication technologies over the business cycle
  34. In search of lost time: the neoclassical synthesis
  35. Divorce laws and divorce rate in the US
  36. Is the “Great Recession” really so different from the past?
  37. Monetary business cycle accounting for Sweden
https://doi.org/10.1515/bejm-2012-0042
Keywords for this article
convergence; economic growth; full income; welfare; JEL Classification: O50; O11; I0

Articles in the same Issue

  1. Masthead
  2. Masthead
  3. Advances
  4. How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation?
  5. Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium
  6. Overeducation and skill-biased technical change
  7. Strategic wage bargaining, labor market volatility, and persistence
  8. Households’ uncertainty about Medicare policy
  9. Contributions
  10. Deconstructing shocks and persistence in OECD real exchange rates1)
  11. A contribution to the empirics of welfare growth
  12. Development accounting with wedges: the experience of six European countries
  13. Implementation cycles, growth and the labor market
  14. International technology adoption, R&D, and productivity growth
  15. Bequest taxes, donations, and house prices
  16. Business cycle accounting of the BRIC economies
  17. Privately optimal severance pay
  18. Small business loan guarantees as insurance against aggregate risks
  19. Output growth and unexpected government expenditures
  20. International business cycles and remittance flows
  21. Effects of productivity shocks on hours worked: UK evidence
  22. A prior predictive analysis of the effects of Loss Aversion/Narrow Framing in a macroeconomic model for asset pricing
  23. Exchange rate pass-through and fiscal multipliers
  24. Credit demand, credit supply, and economic activity
  25. Distortions, structural transformation and the Europe-US income gap
  26. Monetary policy shocks and real commodity prices
  27. Topics
  28. News-driven international business cycles
  29. Business cycle dynamics across the US states
  30. Required reserves as a credit policy tool
  31. The macroeconomic effects of the 35-h workweek regulation in France
  32. Productivity and resource misallocation in Latin America1)
  33. Information and communication technologies over the business cycle
  34. In search of lost time: the neoclassical synthesis
  35. Divorce laws and divorce rate in the US
  36. Is the “Great Recession” really so different from the past?
  37. Monetary business cycle accounting for Sweden
Sign up now to receive a 20% welcome discount
Institutional Access
How does access work?
Have an idea on how to improve our website?
Please write us.
© 2025 De Gruyter Brill
Downloaded on 31.12.2025 from https://www.degruyterbrill.com/document/doi/10.1515/bejm-2012-0042/pdf
Scroll to top button