Conceptual framework

It is recognized globally that human capital formation plays pivotal role in economic growth in the long run. In this context, health is a critical component of the living standards (socio-economic) of a society. Health is broadly visualized as an input into and outcome of development process, integrated socio economic uplift based (linking health improvements with other sectors like water and sanitation and nutrition) on health status improvements depicts a reflection and cause of ongoing development efforts towards human welfare. It is an established fact that improvements in health of population as a whole definitely have a positive impact by generating social returns to individuals and communities. This explains on one hand, improved human capital is better capable of participating in economic activities, improved productivity at individual level and consequently better living standards. On the other hand, better health status will result in lesser absence from work and reduces disease burden (Basta, Karyadi and Scrimshaw, 1979) which translates into low economic cost in terms of providing health services and hence better coverage and better management of the available resources.

As health related illness in most of the African and Asian economies, costing economic loss and retarding human development. The improvement in health would translate towards low population growth, higher income, and higher economic growth. Health provides basis for productivity increase and efficient learning(WHO, 2001).

Inability of growth rate convergence of developing countries necessitates the emergence of new growth theories. Along with physical capital, new growth theories, emphasized on human capital formation and its importance for economic growth. Health is a prominent part of human capital along with education.

Lichtenberg (2004) argued that more public health services could enhance level of life expectancy. An increase in government spending not only leads towards longer life and hence faster economic growth as reinforced by that long life implies a larger work force, which can also drive faster growth (Aisa Pueyo, 2004). For broad based economic growth, developing countries, has to draw attention towards human capital formation by investing in health and education, as higher spending is worthwhile (see for example; Webber, 2002).

Studies revealed that a healthy person not only works efficiently but also able to devote more time to economic activities that increase productivity. It is estimated that health improvements accounts for one third increase in GDP growth (Bloom and Sevilla, 2004). An increase of health spending by one

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percent causes 0.5 percent increase in GDP per capita per annum. Hence, improved health causes economic growth. The impact of improved health status augments country’s human capital. Direct contribution of health in economy is through increased labor productivity; hence, there is growing evidence on investing in health not only for economic growth and for improving human capital but to prevent slippage into poverty by avoiding income or consumption shocks for example, in Colombia, the public and private investments in health are related to future earnings of individual as one more day of disability decreased male (rural) earnings by 33% and 13% for female (Ribero and Nunez, 1999). Ill health may mean that people who are able to work have reduced productivity, shortened working lives, and increased numbers of days lost to illness. Therefore, imposes a higher level of risk on the poor than on people with more assets. Reduced cost due to better health (less illness) mean increase in welfare. Improved health can contribute substantially to economic growth, predominantly by way of reducing production losses caused by worker illness and raising labor productivity. Most obvious sources of gain are fewer working days lost to illness, greater opportunities to obtain better-paying jobs, and longer working lives (World Bank, 1993).

However, a related reason why better health may not automatically boost efficiency is that rapid population growth and an increasing labor force in many developing countries result in a labor surplus and, consequently, in higher unemployment or a sharp drop in the marginal productivity of workers (Sorkin, 1984). Economic growth can sometimes be explained partly by the control of endemic diseases, especially if new regions are opened up for settlement and development. In Brazil, for example, improvements in transportation and the control of malaria in various regions triggered a rapid increase in economic growth (Sorkin, 1984). Spending that reduces the incidence of disease can produce big savings in treatment costs. As research in nine developing countries and seven developed countries has shown, preventing a case of AIDS saves, on average, about twice GNP per capita in discounted lifetime costs of medical care (World Bank, 1993).

There are direct and indirect channels that contribute to lower health status in Pakistan which includes; lack of education (especially the mother’s education), poverty, high fertility, urban bias in health services provision, lack of planning and poor management and unnecessary delay in implementation, lack of evaluation process and low utilization of funds and corruption, lack of adequate health facilities, paramedical staff, low level of public spending (development spending is less than non development spending), lower doctor patient ratio, prevalence of infectious diseases etc. All these points are of relevance to Pakistan as much as for any other developing country. Number of these issues needs

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political commitment; some of them are relevant to demographic policy, others with social and economic order in the country. Keeping in view the role that health can play in the economic development of Pakistan, following is a conceptual model (see figure 4.1) to better understand the link between political, social, economic and demographic factors at aggregate level and their interaction with public health expenditures, health status of the population and ultimately with the development of the economy. The two way arrow means that there is a possibility of reverse causality and in some cases this hypothesis is also empirically tested for example; the relation of health spending and health status, the relation of infant mortality, fertility and income, relationship of life expectancy, income and health expenditures etc.

Figure 4.1: Diagrammatic relationship among health, health status and Economic Development

Source: Author’s own illustration.

It is however; clear that health is an important aspect of human development and is affected by political, social, economic, demographic and environmental consequences. Therefore, at macroeconomic level a conceptual model is developed to analyze the channels that affect health expenditures, health status and hence economic development of a country. In this hypothetical model (panel A) shows that factors that affect public health expenditures at national level (see for example; Gerdtham, et.al. 1992; Hansen and King, 1996; Blomqvist and Carter, 1997; Newhouse, 1977).

Panel B of the figure 4.1 shows reinforcing relation between health status and public health expenditures as well as other factors that are equally affecting health expenditures. It is assumed that the more improved the health status a society enjoys, it is more conscious of its health and hence

Public health spending

Health status of the population (e.g., fertility, life expectancy, nutrition, infant mortality) Economic Development Influencing factors: Economic, Political, Social, Demography and environmental A B C

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positively affecting health expenditures (see for example; World Bank, 1993; okunade and Karakus, 2000 and Hamuodi and Sachs, 1999).

In many studies it is explained that health in not only an input to development process but an end of this process to accomplish as well. Therefore, a reverse relationship is hypothesized in this model between health status and economic development of a country (see for example; Finlay, 2007 and Suhrcke et.al, 2005).

4.2

Theoretical framework