PUBLIC EXPENDITURE ON HEALTH CARE: New Research Administration Structure Retreat DOES June 23 IT & 24, MATTER 2006 IN THE CARIBBEAN? Office of the Vice President for Research and Compliance Presenter: Daren A. Conrad, Ph.D. December 6 th, 2012 Demas Rampersad Seminar Series 1
Daren A. Conrad, Ph.D. Department of Economics University of the West Indies St. Augustine Campus & Marquitta Webb, Ph.D. Department of Agricultural Economics & Extension University of the West Indies St. Augustine Campus 2
Agenda Background Purpose of the Study Literature Review Theoretical Framework Data & Methods The Model Preliminary Findings Extending the Theoretical Framework 3
Purpose of Study To investigate the relationship between the public expenditure on health care and economic growth in Barbados, Guyana, Jamaica, and Trinidad and Tobago. 4
Literature Review (Developing Countries) FSS Countries with unhealthy populations are confined to the label of poor (Acemoglu et al., 2003). Assertion of the effect of diseases on the Caribbean and Latin American region can easily be made given the weakened health care structures (Bloom, Canning, Sevilla et al., 2004). 5
Literature Review (cont d) There is a correlation between the prevalence of diseases and overall economic output (Bloom, Canning, Sevilla et al., 2004). Changes in health in developing countries have effects on utility that are quite significant (Weil, 2010). 6
Literature Review (The Caribbean) FSS Basic health services gives the poor the opportunity to gain from increased income (Swaroop, 1996). Increases in health spending as a ratio of GDP per capita calorie availability (calorie intake) and literacy rate add to a populations health status (Greenidge & Stanford, 2007). 7
The Macroeconomic Effect of Health Labor Productivity HEALTH Labor Supply ECONOMY Education Savings and Investment Source: Modified from Bloom, Canning, and Jamison, 2004 8
Data & Methods Data Sources World Bank United Nations Global Disease Burden Reports United Nations Human Development Reports WHO National Health Accounts 9
Data & Methods (cont d) Time series data were used in the study and are entirely secondary data covering the period 1990 2009. Ordinary least squares multiple regression analysis was used to generate the results. 10
The Hypothesis Ho: There is no significant relationship between the public expenditure on health care and economic growth in the sample countries. Ha: There is a significant relationship between the public expenditure on health care and economic growth in the sample countries. 11
The Model (Adopted from Bakare and Sanmi, 2011) Y t = K t, A t, L t (1) Where Y is real output, K is capital stock, A is technology, t is time dimension, and L is labor FSS Y t = Kα t, H β t, (A t L t ) (2) The reduced equation for (2) is expressed as: Log Y t = α 0 log K t, + β 1 log H t, + β 2 log (A t L t ) (3) Where K t = capital stock ; H t = human capital and L t = Labor For estimation purposes, equation (3) is restated as: LGDP = α 0 + α 1 LGCF, + β 1 LHCE +β 2 LCPW + Controls + σ (4) A priori economic expectations α 0 > 0; α 1 > 0; β 1 > 0 ; & β 2 > 0 12
The Model (cont d) FSS Where: Log Y t = log of real output proxied as log of Gross Domestic Product (LGDP) Log K t, = log of capital stock proxied as log of Gross Capital Formation (LGCF) Log H t = log of human capital proxied as log of public medical costs of health care (LHCE) Log L t = log of labor proxied by the log of Secondary school enrollment (LCPW) α 1 ; β 1; β 2 are parameters to be estimated σ is the error term 13
Regression Results FSS Variable Barbados Guyana Trinidad & Tobago Jamaica LHCE 0.0001* 0.0021** 0.0008** 0.0006** LGCF 0.0017** 0.0045*** 0.0067* 0.0003** LCPW 0.0041** 0.0002 0.3232* 0.1361** R 2 0.74 0.72 0.79 0.64 Durbin Statistic Watson 1.93345 1.96522 1.98307 2.00041 *p <.1, ** P<.05, ***P<.01 14
Preliminary Findings In Barbados, Trinidad and Tobago, Jamaica, and Guyana ; the public medical costs of health care have a positive effect on output. 15
So No Worries The relationship between growth in output and public sending on health care is positive and statistically significant Our health indicators compare favorably with more developed countries (Theodore, 2000) The Caribbean is justifiably proud in regard to its aggregate health indicators (Theodore, 2000) 16
We Cool Expenditure on health care in the Caribbean (Craigwell, Bynoe, and Lowe, 2003): 1995 2007 was11% of government expenditure; and Comparable to that of highly developed countries like Canada. The Caribbean has one of the best vaccination programs in the world (HECORA, 2008). 17
Well, let s take a closer look FSS Prevalence of obesity in the Caribbean rose to 70% from 40% between 1988 2002 (CARICOM Secretariat, 2007). The Caribbean has the highest prevalence of CNCDs (PAHO, 2009) Leading cause of premature deaths in individuals <70 years of age 70% of deaths are caused by CNCDs. Common risk factors of these diseases are obesity, smoking, and lack of exercise 18
Extending the Theoretical Framework 19
Extended Theoretical Framework The Lucas (1988) model provides the theoretical framework for the model. Dividing the economy into two sectors: the sector producing capital; and the sector producing goods. 20
The Model FSS The production is specified as: Y t = K α t ( γh ) 1 α (1) where H is the human capital stock, is the fraction of human capital devoted to the production of goods and is the input of human capital in the goods sector. γ γh 21
The Model (cont d) FSS If we assume that the total human capital H grows in proportion to the amount of human capital employed in this sector ( 1 γ ) H, then the growth rate of human capital is given by: λ dh dt = λ( 1 γ ) H where will now be the effectiveness of the investment in human capital. 22
The Model (cont d) FSS If a constant fraction of human capital is devoted to sector H, the sector producing human capital, human capital will grow at a constant exponential rate: 1 γ H = dh dt 1 H = λ(1 γ ) This will generate a steady-state path in which the rate of accumulation of physical capital is equal to and is determined by the rate of human capital accumulation. 23
The Model (cont d) FSS Human Capital Accumulation: i b, i HCA = An ( h h) t t t δ g H t t φ Where b i h, t =human capital accumulation at the basic level gt φ = depreciation of human capital stock Ht =Health care expenditure 24
Consider This A). Human capital at the basic and advanced stages are not perfect substitutes: H = H b + ρh a t t t Where ρ is the elasticity of substitution. B). Private medical care and public medical care are not perfect substitutes 25
Data Challenges Surveillance of chronic disease risk factors Health finance information is lacking Lack of database on health personnel and the training pool Lack of data on mental health burden of disease 26
Concluding Remarks In Barbados, Trinidad and Tobago, Jamaica, and Guyana ; the public medical costs of health care have a positive effect on output. 27
What s Next on the Horizon? Using the Cost of Illness Approach to estimate the actual cost of Non-Communicable Diseases in the Selected Countries. 28
THANK YOU 29
COMMENTS / SUGGESTIONS / QUESTIONS 30