Health, education, and economic growth in East Asia
| Published date | 22 June 2010 |
| DOI | https://doi.org/10.1108/17544401011052267 |
| Date | 22 June 2010 |
| Pages | 110-131 |
| Author | Hongyi Li,Huang Liang |
| Subject Matter | Economics |
JCEFTS
3,2
110
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 3 No. 2, 2010
pp. 110-131
#Emerald Group Publishing Limited
1754-4408
DOI 10.1108/17544401011052267
Health, education, and economic
growth in East Asia
Hongyi Li and Huang Liang
Department of Decision Science and Managerial Economics,
Faculty of Business Administration, The Chinese University of Hong Kong,
Shatin, Hong Kong
Abstract
Purpose – The purpose of this paper is to examine empirically the sources of economic g rowth
based on an augmented Mankiw, Romer, and Weil’s model which considers human capital in the
forms of both health and education for a group of East Asian economies including China.
Design/methodology/approach – Empirical results are based on the analysis of a panel dataset
from 1961 to 2007. Sub-sample estimation for the post-1997 Asian Financial Crisis period is also
considered for comparison purposes.
Findings – The impact of the stock of health and education on economic growth is statistically
significant for both the whole sample and sub-sample period. However, the impact of investment in
education on economic growth is a little ‘‘fragile’’. The statistical results show that the statistical
impact of health on economic growth is stronger than that of education. It seems that it is more
plausible for the policymakers in East Asia to invest more in health than educational human capital.
Originality/value – This paper is one of the first empirical studies to analyze the effect of human
capital in the form of both health and education on economic growth in East Asia.
Keywords Economic growth, Health services, Human capital, Education, China
Paper type Research paper
1. Introduction
East Asia, fueled by the relatively healthier global environment, improving domestic
conditions, and continued strengthening of the Chinese economy, has become the fastest
growing region in the world in the past decades. Although the economic growth in East
Asia was also affected by the once a hundred year global financial tsunami, it is still
expected to keep a high growth rate in the region. According to the latest issue of World
Bank’s half year East Asia and Pacific Update report in January 2009, it is forecast that the
GDP growth for the East Asia would drop from 7 percent in 2008 to 5.3 percent in 2009[1].
The March issue of Global Economic Perspective released by Union Bank of Switzerland
(UBS) even predicted that the growth rate may drop to only 3 percent for East Asia in 2009.
The economic success of the East Asia region has generated wide interest in academic
studies and it has long been one of the most analyzed regions in empirical growth studies.
Among those studies, most of them focused on the determinantsofthisrapideconomic
growth. In the early empirical studies, one strand of studies attributed the growth miracle
of the East Asia region to the export-oriented industrialization (Kr ugman, 1994; Young,
1994, 1995; Takenaka, 1997). On the other hand, another strand of studies emphasized the
impact of human capital in the form of education on economic growth. It is stated in a
World Bank report that one important factor for the EastAsian economic growth during
the 1960-1990s is the universal provision of primary and secondary education (World
Bank, 1993). Other studies emphasizing the important role of education on economic
growth in East Asia include Morris (1996), Mingat (1998), and Hanushek and Kimko
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
This paper was presented at the Chinese Economists Society (CES) annual conference at
Nanning, China, 12-15 June 2009.
Health,
education, and
economic growth
111
(2000). The country-specific empirical studies on the role of education in promoting
economic growth include: China (Wang and Yao, 2002; Fleisher, 2005); Korea (Lee, 2000;
Zin, 2005; Kwack and Lee, 2006); Malaysia (Milanovic, 2006); and Vietnam (Kikuchi, 2007).
The role of human capital in the form of education has been well recognized by both
the theoretical and the empirical studies[2]. According to Schultz (1961), another
important form of human capital is health. Compared with the considerable empirical
studies on education,there is few existing empiricalliterature on the role of healthplayed
in the East Asia economic growth. In this paper, we study empirically the impact of
human capital investment in both health and education on economic growth in the East
Asia region by incorporating human capital in the forms of both health and education
simultaneously into a neoclassical growth model using a newly compiled dataset with
health and educationproxy variables which are complete and suitable tothe situation in
East Asia. Anotherdifference between our study and the previousones is that our study
covers the period from 1961 to 2007, with a special focus on the sub-sample period from
1997 to 2007, which is the post-1997Asian Financial Crisis period. Our statistical results
can be used to makecomparison with the studiesemphasizing on the 1960-1990speriod.
The rest of the paper is organized as follows. Section 2 discusses the relationship
between health, education, and economic growth. Section 3 outlines the econometric
details and discusses the data used in the empirical analysis. Section 4 presents the
estimation results of the growth regressions and discusses the main findings. Finally,
section 5 offers concluding remarks.
2. Health, education, and economic growth
The policy implicationof the effect of humancapital on economic growth in East Asia is
of concern to both the policymakers as well as to the academic researchers. Even at a
time when the whole region is currently suffering from the financial tsunami, increasing
investment in education and health is still one of the measures to stimulate domestic
demand. The most obvious example is the 4 trillion RMB economic stimulus package
recently announced by the Chinese State Council, where increasing spending in health
and education services is among the key measures. Therefore, it is worthwhile to
investigate empirically the contribution of health and education investment to economic
growth in East Asia. As mentioned in the introduction, the earlier empirical analyses of
human capital investment on economic growth in EastAsia dwelled only on the effect of
education. However, there have already been some papers, such as Schultz(1961), Arrow
(1962), Mushkin (1962), and Ehrlich and Liu (1991), showing that health is another
important source of economic growth as well. Barro (1996) first proposed a theoretical
framework incorporating health into the production of outputs. Van Zon and Muysken
(2001, 2003) extended the Lucas (1988) model and followed the idea of Grossman (1972)
by introducinghealth into both the productionfunction and utility function.They argued
that health influences economic growth through three channels[3] and the demand for
health care services may occupy resources which could have been used for production.
Therefore in our empirical study, we should also consider the effect of health investment
together witheducation investment if data areavailable.
Although there is little empirical evidence on the role health played in the economic
growth in EastAsia, many empiricalstudies investigated the effectof health on economic
growth in other regions. There have already been some analyses analyzing empirically
the role health plays in promoting economic growth from both macroeconomic (for
example Knowles and Owen, 1995; Barro, 1996) and microeconomic (for example Bloom
et al., 2001) perspectives. The empirical study of Mayer et al. (2001) found that health
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