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Health and wealth rpa feb00.pdf
The Health and Wealth of Nations
David Bloom is professor of economics and demography at Harvard University’s
School of Public Health. David Canning is professor of economics at Queen's
University of Belfast. The authors appreciate comments provided by an anonymous
reviewer and by participants at a May 1999 workshop co-sponsored by the U.K.
Department for International Development and the World Health Organisation.
The Health and Wealth of Nations
The positive correlation between health and income per capita is one of the best-known relationships
in international development (see figure 1). This correlation is commonly thought to reflect a causal
link running from income to health. Higher income gives greater command over many of the goods
and services that promote good health, such as better nutrition and access to safe water, sanitation,
Recently, however, another intriguing possibility has emerged: that the health-income correlation is
partly explained by a causal link running the other way – from health to income. Several mechanisms,
falling into four main categories, could account for this relationship:
Healthier populations tend to have higher labor productivity, because their workers
are physically more energetic and mentally more robust. They suffer fewer lost workdays due to illness or the need to care for other family members who have fallen ill.
Healthier people who live longer have stronger incentives to invest in developing
their skills, because they expect to reap the benefits of such investments over longer periods. Increased schooling promotes greater productivity and, in turn, higher income. Good health also
promotes school attendance and enhances cognitive function.
Investment in physical capital.
Improvements in longevity create a greater need for people to
save for their retirement. Insofar as increased savings lead to increased investment, workers will
have access to more capital and their incomes will rise. In addition, a healthy and educated
workforce acts as a strong magnet for foreign direct investment.
. The transition from high to low rates of both mortality and fertility has
been dramatic and rapid in many developing countries in recent decades. Mortality declines
concentrated among infants and children typically initiate the transition and trigger subsequent
declines in fertility. An initial surge in the numbers of young dependents gradually gives way to
an increase in the proportion of the population that is of working age.1 As this happens, income
per capita can rise dramatically, provided the broader policy environment permits the new
workers to be absorbed into productive employment (Bloom and Canning 2000).
All these mechanisms offer plausible ways in which health improvements can lead to income growth.
However it is necessary to examine the data to understand how important each mechanism is. Recent economic analysis indicates that health status (as measured by life expectancy) is a significant
1 Eventually, this process will lead to large cohorts of retired people. Although one might surmise that this will act as
a drag on economic growth, the data indicate otherwise. Presumably, this is because many elderly people work (or enable others to work by minding their children), some of them continue to save, and many continue to impart their
accumulated knowledge to others. Nevertheless, the demographic dividend is not permanent. Eventually, the large-sized cohorts will pass through the age distribution as surely as a pig that has been swallowed by a python.
Demographic change thus creates a window of opportunity for economic growth, but not one that remains
perpetually open (Bloom and Williamson 1998).
predictor of subsequent economic growth.2 This effect is above and beyond other influences on
economic growth, it emerges consistently across studies, and it is strikingly large.3
Suppose we compare two countries that are identical in all respects, except one has a 5-year
advantage in life expectancy. Based on a range of studies, real income per capita in the healthier country will grow 0.3-0.5% per year faster than in its less healthy counterpart. This represents a
sizeable boost to growth, given that, from 1965-1990, countries experienced an average per capita
income growth of only 2% per year. Moreover, a gain of five years in life expectancy is well within the
reach of most developing countries – since 1950, for example, world life expectancy has increased by
As these health improvements fortify the economy, they also alleviate poverty. Economic growth is an
exceedingly powerful way to reduce poverty among the 1.3 billion people living on less than US$1 per
day. Available evidence indicates that increases in average income translate – percentage point for
percentage point – into increases in the income of the poor. In addition, health improvements are
disproportionately beneficial for the poor since they depend on their labor power more than any other
Just as the direct effects of life expectancy on economic growth are important, so too are the indirect
effects of improvements in health status that operate via demographic change. In East Asia, for example, the working-age population grew several times faster than the dependent population between
1965 and 1990. The whole process seems to have been triggered by declining child and infant
mortality, itself prompted by the development of antibiotics and antimicrobials (such as penicillin,
sulfa drugs, streptomycin, bacitracin, chloroquine, and tetracycline, all of which were discovered and
introduced in the 1920s, 1930s, and 1940s), the use of DDT (which became available in 1943), and classic public health improvements related to safe water and sanitation (see Bloom and Williamson
1998; Easterlin 1998). Health improvements can therefore be seen to be one of the major pillars upon which East Asia’s phenomenal economic achievements were based, with the “demographic
dividend” accounting for perhaps one-third of its “economic miracle (Bloom and Williamson 1998; Bloom, Canning, and Malaney 2000).
By contrast, poor health can slow the demographic transition and inhibit growth. In Sub-Saharan
Africa, for example, a seemingly intractable disease-burden induces many families to dissipate their
resources among large numbers of children, creating a high-fertility, high-mortality poverty trap that
impedes economic growth (Bloom and Sachs 1998).
Patterns of energy use also mediate the relationships between health, demography, and income. The
rural poor rely heavily on wood, dung, and other biomass. The resulting smoke and particulates are detrimental to human health and can diminish people’s productivity. Across countries, there is a
strong association between demographic and health indicators, and the use of biomass in traditional ways. Infant and child mortality rates are elevated, and life expectancy is diminished, particularly for
women who undergo increased exposure to smoke while cooking. Fertility rates are also high, partly to ensure enough children for firewood collection.4 Slow income growth is the end result.
2 For an up-to-date list of citations see World Health Organisation 1999.
3 Strauss and Thomas (1998) provides a comprehensive review of related evidence, based on household surveys, of the links between health and productivity.
4 These effects appear to be quite large. For example, a 40% increase in traditional fuel use (which corresponds to
the difference between Vietnam and Malaysia) translates, on average, into one extra birth per woman over her
lifetime, and a full percentage point rise in the population growth rate. See Bloom, Craig, and Malaney 2000.
The phenomenon of mutual reinforcement
Traditionally, economists have treated health like any other consumer good and assumed that the direction of causality was from income to health. We now have good reasons, and strong evidence, for
believing that health improvements also stimulate economic development. These two views are, of course, compatible. The development process is inherently dynamic – with health improvements
promoting economic growth, which in turn promotes better health. This “virtuous spiral" can transform
an impoverished, disease-prone country into one that offers its people a much higher quality of life.
Compelling examples of such a transformation can be found in East Asia and Ireland, and in the
economic history of several wealthy industrial countries (Steckel and Floud 1997).
Health improvements and economic growth can be mutually reinforcing in another way. As rising incomes cause fertility to decline, there are consequent benefits for the health of mothers and children,
via longer breastfeeding, less stress on women’s reproductive systems, more opportunities for them to
work outside the home, and increased resources for each child’s upbringing. In turn, declines in
fertility promote economic growth by allowing more of society’s resources to be devoted to urgently
needed investments in physical capital, infrastructure, and educational quality.
Regrettably, the mutual reinforcement between health and income can also operate in reverse.
Declines in health status in some parts of the world are having staggering impacts on economic well-
being. The AIDS epidemic in Africa is perhaps the most prominent example. 8 percent of African
adults are now HIV positive, with 56 percent of sub-Saharan Africans not expected to reach age 60
(Bloom, Rosenfield, and River Path Associates, 1999).
The economic burden imposed by this disease is enormous. The required costs of detecting and treating the infection and its clinical manifestations are well in excess of per capita public expenditures
on health care in Sub-Saharan Africa. With more than 80% of global AIDS mortality occurring among people of working age, the income and output losses associated with the epidemic are daunting. A
number of economic studies conclude that the AIDS epidemic is slowing the pace of economic growth
and depleting the wherewithal to deal with other diseases – such as diarrhea, hepatitis, malaria and
tuberculosis – that are ravaging health in many countries (World Bank, 1997).
Russia provides another example. Its transition to a market economy, which began in the early 1990s,
coincides closely with a precipitous fall in life expectancy, accounting for 1.4 to 1.6 million premature
deaths during 1990-95, including disproportionately large numbers of working-age men. There are
many reasons to believe that Russia's economic and political instability and plummeting incomes are
to blame for this health crisis, which left the life expectancy of Russian males in the mid-1990s below
the average for developing
Among the factors that link falling incomes to the worsening of Russians’ health are a further deterioration of the already poor Russian diet, increased alcohol consumption, mental stress, and the
related surge in accidents and injuries. Negative income growth took a major toll on public spending on health care, and many parts of the Russian medical system have descended into chaos as a result.
The health crisis is now having an impact on Russia’s catastrophic economic performance. The
effects are currently modest, but are indisputably negative and likely to worsen as the vicious spiral picks up momentum (Becker and Bloom 1998).
Conventional wisdom holds that income growth results in improved health. But that is only part of the health-income story. The rest of the story concerns the role of health as an instrument of self-
sustaining economic growth and human progress. Poor health is more than just a consequence of low
income; it is also one of its fundamental causes. To be sure, health and demography are not the only
influences on economic growth, but they certainly appear to be among the most potent.
This contrasts with the standard view that a high death rate reduces population growth, raises the
capital-to-labor ratio, and increases labor productivity and income per worker. A revolution in economic thinking has taken place over the past few decades, putting human capital, in the form of
education, on a par with physical capital as an input into production. We would argue that increased
health is another form of human capital that also enters into production. In addition, long life
expectancy may be the fundamental force that creates the demand for education and encourages the
domestic saving that is a key determinant of economic growth.
This perspective offers an exciting new possibility in international development: investing in health to help stimulate development. A focus on health cannot be the sole approach to improving living
standards, nor may it even be the best. However, the evidence for viewing health as one of the more effective arrows in the development quiver is surely growing stronger.
Life Expectancy and Income, 1997
Income per Capita (log scale, Current PPP$)
Source: World Bank, World Development Indicators
Becker, Charles M. and David E. Bloom. (1998). “The Demographic Crisis in the Former Soviet Union:
Introduction,” World Development 26 (11): 1913-19.
Bloom David E. and David Canning. (2000). “Demographic Change and Economic Growth: The Role of
Cumulative Causality.” In Nancy Birdsall, Allen C. Kelley, and Stephen Sinding, eds., Population Does Matter:
Demography, Growth, and Poverty in the Developing World.
New York: Oxford University Press,
Bloom David E., David Canning, and Pia N. Malaney. (2000). “Demographic Change and Economic Growth in
Asia,” Population and Development Review
Bloom, David E., Patricia Craig, and Pia Malaney. (2000). The Quality of Life in Rural Asia.
Bloom, David E., Allan Rosenfield, and River Path Associates. (1999) A Moment In Time: AIDS and Business
American Foundation for AIDS Research, Washington, D.C.
Bloom, David E. and Jeffrey D. Sachs. (1998). “Geography, Demography, and Economic Growth in Africa,” Brookings Papers on Economic Activity,
Bloom, David E. and Jeffrey G. Williamson. (1998). “Demographic Transitions and Economic Miracles in
Emerging Asia,” World Bank Economic Review 12 (3): 419-55.
Easterlin, Richard A. (1998). “How Beneficent is the Market? A Look at the Modern History of Mortality,”
University of Southern California, unpublished manuscript.
Steckel, Richard H. and Roderick Floud, eds. (1997). Health and Welfare During Industrialization
The University of Chicago Press.
Strauss, John and Duncan Thomas. (1998). “Health, Nutrition and Economic Development,” Journal of
World Bank. (1997). Confronting AIDS: Public Priorities in a Global Epidemic.
Policy Research Report. New
York: Oxford University Press.
World Health Organisation. (1999). World Health Report 1999: Making a Difference.
Geneva: World Health
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