Health Expenditures, Longevity and Growth

Abstract

This paper offers an integrated view of the relationships between health spending, medical innovation, health status, growth and welfare. Health spending triggers technological progress, which is a potential source of better outcomes in terms of longevity and quality of life, a direct source of growth for the bio-tech industries and an indirect source of growth through improved of human capital. The latter contributes to GDP per capita through two main channels: higher participation of the population in the labour force and higher labour productivity levels. In turn, income growth induces an increase in health expenditure, as richer countries tend to spend a higher share of their income on health. To analyse these interactions, the paper first focuses on demographic facts, disentangling the role of longevity and carrying out some 'thought experiments' on the indexation of active life on longevity. It then analyses the links between health care expenditures, technology and health status from a micro-level perspective. We investigate empirically the relation between GDP growth and health expenditures and develop a projection method to assess the size of total aggregate expenditures that could be channeled to the health sector up to 2050 for the US, Europe and Japan. We finally assess the potential impact of these health expenditures and better health status on potential growth and productivity.

Keywords: Health expenditures, ageing, longevity, Human capital, Growth

JEL Classification: H51, I11, I12, J11, J14, O40