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Health care investments and economic performance in Portugal: an industry level analysis

Author

Listed:
  • Alfredo M. Pereira
  • Rui M. Pereira
  • Pedro G. Rodrigues

Abstract

Purpose - The purpose of this paper, on Portugal, is to determine the economic effects of public and private capital spending on health. Design/methodology/approach - The authors use a vector autoregressive model to estimate the elasticities and marginal products of health care investments in Portugal on investment, employment and output. Findings - Every €1m invested in health care yields significant positive spillover effects, boosting investment and GDP by €24.74 and €20.45m, respectively, creating 188 net jobs. Adversely, net exports deteriorate, as new capital goods are imported. While only 28.2 percent of the total accumulated increase in GDP occurs within a year, investment is front loaded with a corresponding 73.8 percent. Over this period, 68 workers are displaced for every €1m invested. At a disaggregated level, real estate, construction, and transportation and storage are industries where output shares increase the most. Employment shares increase the most in professional services, construction and basic metals. Research limitations/implications - This paper adds to the empirical literature, corroborating, for example,Rivera and Currais (1999a)andMcDonald and Roberts (2002)in that health care spending can have a very significant effect on macroeconomic aggregates. In addition to the analysis of the tradable/non-tradable divide, it adds two further novelties by discussing industry-specific effects on economic performance and the distinction between effects on impact and those over the longer term. Practical implications - As policy implications, health investments have very significant long-term economic performance effects, but are unhelpful counter cyclically. Also, they will change the industry mix: construction and professional services are the non-traded industries that will benefit the most, while the traded industries of non-metallic minerals, basic metals, and machinery and equipment benefit much less. Social implications - Given that capital spending on health boosts economic performance, especially in the long run, it ought to be a part of Portugal’s medium-to-long-term growth strategy. Also, if these projects depress economic activity in the short run, and are thus unhelpful counter cyclically, the timing of when they are launched matters. Furthermore, following a health investment, policies that boost net exports will be required to ensure trade balance. Originality/value - The originality of this paper is to estimate, in a dynamic framework, the aggregate and industry-specific elasticities and marginal products on investment, employment and output, allowing the identification of effects both on impact and over the long term. Although health care investments are expected to have important macroeconomic effects, they need not be evenly distributed across industries.

Suggested Citation

  • Alfredo M. Pereira & Rui M. Pereira & Pedro G. Rodrigues, 2019. "Health care investments and economic performance in Portugal: an industry level analysis," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(6), pages 1174-1200, October.
  • Handle: RePEc:eme:jespps:jes-12-2017-0366
    DOI: 10.1108/JES-12-2017-0366
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    References listed on IDEAS

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    1. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-1196, September.
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    7. David E. Bloom & David Canning, 2008. "Population Health and Economic Growth," World Bank Publications - Books, The World Bank Group, number 28036.
    8. Pereira, Alfredo Marvao & Roca-Sagales, Oriol, 2003. "Erratum to "Spillover effects of public capital formation: evidence from the Spanish regions": [Journal of Urban Economics 53 (2003) 238-256]," Journal of Urban Economics, Elsevier, vol. 54(1), pages 197-197, July.
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    1. Cuina Zhang & Ruobing Li & Yun Xia & Yixing Yuan & Hasan Dinçer & Serhat Yüksel, 2020. "Analysis of Environmental Activities for Developing Public Health Investments and Policies: A Comparative Study with Structure Equation and Interval Type 2 Fuzzy Hybrid Models," IJERPH, MDPI, vol. 17(6), pages 1-23, March.

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    More about this item

    Keywords

    Portugal; Economic performance; Health care investment; Industry mix; Vector autoregressive; C32; E22; H54; O52; L90; L98;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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