What are the links between economic growth, poverty and health? This article for Development Policy Review examines the question using data from 15 major Indian states. It argues that, while growth tends to reduce poverty, substantial improvements in health status are also required for poverty alleviation.
Considerable research has been done on the relationship between poverty and health. But the links between growth and health have received less attention, partly due to the inadequacy of long-term data. This study aims to shed more light on these connections by looking for patterns in a set of variables across states and over time for each state. It then tests the causalities empirically, favouring an econometric model in which health and growth are taken to influence each other and poverty is a function of both growth and health. The results show that better health is essential for poverty reduction. In addition, economic growth and health status are positively correlated and have a two-way relationship. Health expenditure can thus boost growth and health status, and is an important tool for policy makers.
Cross-state data suggested mild associations between growth, poverty and health. Time series data made it clearer that higher growth coincides with lower poverty and better health status. Econometric testing revealed that:
- Better health status increases growth, and as the economy grows richer, health status improves considerably.
- This is because a growing economy leaves greater resources for welfare activities, and better health status raises productivity and thus growth.
- Both growth and health status influence poverty, but health seems to have a stronger effect in reducing poverty than growth.
- Higher per-capita health expenditure increases health status and growth, and marginally reduces poverty.
- Literacy accelerates the growth rate, reduces poverty and improves health status. Industrialisation also has a positive effect on all three variables.
- Expenditure on anti-poverty programmes does not have a strong effect on poverty.
These findings have implications for policy makers, particularly in countries like India. Here, although poverty has declined to some extent over the years, the health status of the population has stayed low. The study suggests that:
- Further reduction in poverty is probably not possible without significant improvements in health conditions.
- This can be obtained by more investment in health, among other determinants.
- India, however, invests very little in health – just 0.9 percent of gross domestic product in 2001. It needs to invest on a significantly larger scale, as higher health expenditure per capita boosts growth and quality of life.
- In general, improved health outcomes are necessary for higher income growth rates, especially over time. In turn, stronger growth allows the system to generate better health outcomes, leading to less poverty.
- Alongside more investment in education and growth-promoting areas like industrialisation, greater health investment may be necessary to put countries on a path to higher growth with better health and living standards.
