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Health investment, physical capital accumulation, and economic growth

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  • Gong, Liutang
  • Li, Hongyi
  • Wang, Dihai

Abstract

This paper analyzes the effect of health investment, and hence of health capital, on physical capital accumulation and long-run economic growth in an extended Ramsey model with an Arrow–Romer production function and a Grossman (1972) utility function. The paper concludes that economic growth is related to both the health growth rate and the health level. While growth in health capital always facilitates economic growth, the gross effect of health level on the rate of economic growth depends on how it affects physical capital accumulation. If the negative effect of health on economic growth through its influence on physical capital accumulation is not taken into consideration, then health level has a positive effect on the rate of economic growth by improving the efficiency of labor production. However, since health investment may crowd out physical capital investment and thus influence physical capital accumulation, excessive investment in health may have a negative effect on economic growth. Empirical tests of these theoretical hypotheses using panel data from individual provinces of China produce results that are consistent with our theoretical conclusions.

Suggested Citation

  • Gong, Liutang & Li, Hongyi & Wang, Dihai, 2012. "Health investment, physical capital accumulation, and economic growth," China Economic Review, Elsevier, vol. 23(4), pages 1104-1119.
    • Handle: RePEc:eee:chieco:v:23:y:2012:i:4:p:1104-1119
    DOI: 10.1016/j.chieco.2012.07.002
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    More about this item

    Keywords

    Health investment; Health; Economic growth; Physical capital accumulation;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • I0 - Health, Education, and Welfare - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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