In Sickness and in Health The story of health as told by an augmented Solow growth model and cross-country dynamic panel data

This paper tests whether the Solow model augmented with multiple forms of human capitals can explain cross-country difference in growth and investigates the effect of health on the growth of per capita income. Following Knowles and Owen (1995), we introduce both education human capital and health human capital into the textbook Solow model and extend their cross-section analysis to a dynamic panel data analysis to control for omitted variable and endogeneity biases, using a robust and consistent system GMM estimator. By adopting the latest available data for a sample of 111 developed and developing countries over 1960-2004 and various health indicators, as well as splitting our data into sub-samples, We find firstly, the GMM estimators provide relatively more consistent results. The augmented MRW model provides a fairly good account of international variation in economic growth. Conditional convergence, with a speed of around 2 percent per annum, has been found in either the full sample or sub-samples. Secondly, the role of education capital measured as average years of schooling has been partially identified in the extended Solow model incorporating both education and health capitals, rather than the original MRW model. Finally, both the stock of health, and the investment or accumulation of health capital appears strongly associated with the output growth, particularly for low income countries. The effects of health on economic growth largely vary with different samples of countries.