Economic Growth, Longevity, and the Epidemiological Transition

Transcription

1 Universiy of Connecicu Economics Working Papers Deparmen of Economics July 2002 Economic Growh, Longeviy, and he Epidemiological Transiion Olivier F. Morand Universiy of Connecicu Follow his and addiional works a: hp://digialcommons.uconn.edu/econ_wpapers Recommended Ciaion Morand, Olivier F., "Economic Growh, Longeviy, and he Epidemiological Transiion" (2002). Economics Working Papers hp://digialcommons.uconn.edu/econ_wpapers/200207

2 Deparmen of Economics Working Paper Series Economic Growh, Longeviy, and he Epidemiological Transiion Olivier F. Morand Universiy of Connecicu Working Paper July Mansfield Road, Uni 1063 Sorrs, CT Phone: (860) Fax: (860) hp://

3 Absrac This paper inegraes invesmens in healh o a sandard growh model where physical and human capial invesmens are he combined engines of growh. I shows he exisence of wo disinc healh regimes separaed by an Epidemiological Transiion. The various paerns of he ransiion idenified in he epidemiological lieraure can be mapped ino he model. The model also leads o he imporan hypohesis ha he epidemiological ransiion may induce an economy o swich o a modern growh regime. Journal of Economic Lieraure Classificaion: O0, I0, D9 Keywords: growh, longeviy

4 Economic Growh, Longeviy, and he Epidemiological Transiion Olivier F. Morand Deparmen of Economics Universiy of Connecicu Sorrs, CT July 2002 Keyword: Growh, Longeviy JEL Codes: O0, I0, D9 Absrac This paper inegraes invesmens in healh o a sandard growh model where physical and human capial invesmens are he combined engines of growh. I shows he exisence of wo disinc healh regimes separaed by an Epidemiological Transiion. The various paerns of his ransiion ideni ed in he epidemiological lieraure can be mapped ino he model. The model also leads o he imporan hypohesis ha he epidemiological ransiion may induce an economy o swich o a modern growh regime. 1 Inroducion The srong correlaions beween various measures of healh and income per capia have led macroeconomiss o regard healh as an essenial par of any measure of well-being, 1 alhough beer healh and longer life expecancy are mosly viewed as by-producs of he economic growh and developmen of a counry. In conras, microeconomiss looked carefully a he deerminans of he demand for healh and esablished ha he relaionship beween healh and income runs boh ways: Healh is analogous o a normal good, and higher income leads o an increased demand for healh, bu he healh saus of a person also a ecs his or her income and earnings hrough di eren channels (Grossman 1972). These imporan resuls are forcing economiss o rehink heir analysis of he relaionship beween economic growh, healh and longeviy in he ligh of macroeconomic growh models ha inegrae he microfoundaions of healh 1 Life expecancy is included in he Human Developmen Index. 1

5 economics. 2 This paper follows ha goal and develops a heoreical framework ha beer explains he hisorical relaionship beween income and a paricular measure of healh, longeviy, by inegraing resuls from he eld of healh economics ino an endogenous growh model. The paper provides a seing for explaining imporan empirical ndings semming from a broad lieraure in various elds. Firs, paleodemographic sudies have esablished ha life expecancy a birh hardly increased beween he ime of prehisoric huner-gaherers and he end of he 18h Cenury (Acsadi and Nemeskeri 1970, Hassan 1981), despie a change in he mode of producion -he agriculural revoluion- and a slow bu irregular rise in income per capia over ime (Kremer 1993, Morand 2000). Second, demographers and economiss have documened he remendous gains in longeviy and income characerizing he period from he 19h Cenury o he presen in many counries. Third, he clear di erences in he main causes of moraliy beween hese wo periods has led epidemiologiss o use he erm of Epidemiological Transiion o refer o he dramaic changes beween he wo periods; i is a ransiion ha seems o parallel he demographic and echnological ransiion in he developed economies, and which occurred more recenly in less-developed economies (Omran 1971, 1982, Haines 1995). Finally, di eren paerns, paces, and dynamics forhecomplexineracionbeweenmoraliyandeconomicgrowh(and,more generally, beween demographic and economic variables) during his ransiion have been ideni ed and gahered under he name Theory of he Epidemiological Transiion (Omran 1971, 1982). This paper presens a heory ha uni es hese disincive paerns of he Epidemiological Transiion, and also generaes new hypohesis concerning he ineracion beween healh and long-erm economic growh. The framework developed below combines recen developmens in he endogenous growh lieraure (Galor and Moav 2000, Galor and Weil 1999, 2000, Lucas 1998) o he seminal work of Grossman (1972) in healh economics. Speci cally, in an endogenous growh model where oupu is produced by combining physical and human capial, agens can also inves in healh and herefore increase heir healh saus or sock, which in urn posiively a ecs heir uiliy. Consequenly, economic growh has a direc e ec on healh saus and longeviy, providing ha healh is a normal good. However, a change in life expecancy can in urn a ec growh hrough is e ec on agens capial invesmen, a mechanism emphasized in he lieraure on savings under uncerainy (see, for insance, Mirman 1971). Thus, a channel exiss hrough which healh saus and longeviy of a populaion may a ec he economic growh. The paper is organized as follows. Consisen wih he sandard ndings of he endogenous growh lieraure, Secion 2 shows ha a neoclassical regime during which growh is fueled exclusively by he accumulaion of physical capial is followed by a modern regime in which boh ypes of capials conribue o 2 One noable conribuion is ha of Van Zon and Muysken (2001) who inroduce a healh secor in an endogenous growh model o examine he radeo beween healh and human capial accumulaion. Bloom and Canning (2000) informally discuss he various mechanisms connecing growh and healh. 2

6 growh. Secion 3 demonsraes ha an epidemiological ransiion o a regime of increasing longeviy can be riggered by an income hreshold during eiher one of he wo regimes, or, alernaively, by an exogenous change in some of he parameers of he model. These hree di eren heoreical scenarios are shown o mach very closely o he hree generic paerns of he epidemiological ransiion observed by epidemiologiss. The paper also raises he imporan hypohesis ha an epidemiological ransiion can accelerae, and perhaps even induce, he swich beween he neoclassical regime and he modern regime. Secion 4 concludes. 2 The Basic Growh Seup Consider a simple model wih overlapping generaions of idenical agens living for wo periods, called young age and mauriy, and suppose ha cohors are of consan (large) size N. An agen born in period has preferences over he consumpion of a single good in each period of his life, respecively denoed c y and c m +1, which are represened by he following uiliy funcion: u(c y )+u(c m +1); (1) where he period uiliy u is C 2, sricly increasing and sricly concave. The superscrip indicaes which cohor he agen belongs o (young vs. maure), he subscrip, he paricular period considered, and he funcion u(c) =ln(c) will be used in he paper when closed form soluions beer illusrae he resuls. Following he sandard endogenous growh lieraure (see for insance, Galor and Moav 2000, Galor and Weil 1999, 2000), he consumpion good in each period is produced by a rm using a consan reurn o scale echnology in aggregae physical capial K and human capial H according o he producion funcion: Y = AK H 1 = Ak H wih k = K =H and 0 < <1: (2) The quaniy k is hus he capial sock per uni of human capial during period. The rm is perfecly compeiive in he oupu and inpus markes, so i does no maer who owns he rm since he facor paymens compleely exhaus he revenues from selling he oupu. 3 Consequenly, he ineres rae and he wage rae per uni of labor are, respecively: w = A(1 )k and r = A k 1 : (3) Finally, young agens in period are endowed wih a basic human capial level denoed h y. Human capial has wo imporan characerisics. Firs, he young generaion can increase is sock of human capial by making cosly invesmens, as in he seminal work of Lucas (1988). Speci cally, if e denoes 3 To simplify, i is assumed ha all capial fully depreciaes when used in he process of producion. 3

7 he resources invesed in human capial accumulaion/producion in period by a young agen, hen: h m +1 = h y ¹(e ); (4) where ¹ is smooh, sricly increasing and concave, ¹(0) = 1, and¹ 0 (0) = < 1. The second characerisic of human capial sems from he propery ha some of he exising body of knowledge and skills does no have o be enirely rediscovered by he new generaion, bu is communicaed or ransmied from one generaion o he nex a no cos. As a consequence, we assume ha if he maure generaion has increased is sock of human capial, hen he nex cohor of young agens is endowed wih a higher iniial sock han he previous one. Of course, if here has been no learning, nohing can be ransmied. As a simplifying assumpion, i is assumed ha all he new knowledge and skills of he maure is enirely ransmied o he young, 4 so ha: h y +1 = hm +1 = h y ¹(e ); while each young agen of he rs generaion is endowed wih one uni of human capial, i.e., h y 0 =1: A young agen in period maximizes (1) subjec o he budge consrains: and, w h y = c y + s +1 + e ; w +1 h m +1 + r +1 s +1 = c m +1; given he echnologies (2) and (4) and he compeiive prices (3). The equilibrium condiion equaing savings o invesmen is: k +1 = s +1 =(h m +1 + hy +1 )=s +1=(2h m +1 ): The rs order condiions (wih respec o s +1 and e ) associaed wih a non-corner opimal soluion are: and, u 0 (c y )=r +1u 0 (c m +1 ); (5) u 0 (c y )=w +1 h y ¹ 0 (e )u 0 (c m +1): (6) Consequenly, for a non-corner soluion, i mus be ha: h y ¹ 0 (e )=r +1 =w +1 =[ =(1 )]k 1 +1 : (7) 4 The same qualiaive resuls hold when human capial of he young is simply proporional o ha of he old. 4

8 Because ¹ is increasing and concave and ¹ 0 (0) =, condiion (7) implies ha agens invesing in boh ypes of capial will inves a leas he quaniy: k =[ =(1 ) ]; in physical capial. This has imporan consequences for he economy, which have been exploied for insance in Galor and Moav (2000). Consider an economy wih a relaively low level of per capia capial sock k. While he rae of reurn o invesmen in physical capial, r +1, is relaively large, he rae of reurn o invesmens in human capial, w +1 h y ¹ 0 (e ) given by equaion (6), is relaively low, since ¹ 0 (e) a mos equals because ¹ is increasing and concave and ¹ 0 (0) =. I is herefore opimal for agens o make no invesmens in human capial and o only inves in physical capial. This coninues as long as agens inves less han he hreshold k, and implies ha economies wih relaively low per capia capial sock undergo a growh regime fueled exclusively by physical capial accumulaion. In his neoclassical growh regime, he aggregae capial sock increases monoonically over ime, while he aggregae human capial sock remains unchanged. As a resul, during he neoclassical growh regime, he rae of reurn o physical capial invesmen r +1 decreases over ime, while he schedule for he rae of reurn on human capial invesmen, w +1 h y ¹0 (e ), keeps shifing up because of he increase in w +1. This implies he exisence of a hreshold, which is denoed k, a which agens sar invesing joinly in human and physical capial. A his hreshold, he economy eners a modern growh regime fueled by he combinaion of physical and human capial accumulaion. 2.1 The Two Growh Regimes The Neoclassical Growh Consider an economy in period wih a relaively low per capia capial sock, k, such ha he rae of reurn o invesmen in physical capial is greaer han he rae of reurn o invesmen in human capial, and e =0(and has been so in he pas). This implies ha no invesmens in human capial are, or have been, made, so ha h y +1 = hm +1 = hy = h y 0 =1. Subsiuing he equilibrium condiion k +1 = s +1 =2 and he compeiive prices (3) in he rs-order condiion (5) gives: u 0 (A(1 )k 2k +1) =A k +1 1 u0 (A(1 )k +1 +2A k +1 ): (8) Wih sricly concave uiliy u, (8) has a unique soluion k +1, easilyshowno be increasing in k. Since here is no change in human capial, growh in his regime is fueled exclusively by physical capial accumulaion. To beer illusrae his resul, consider he period uiliy u(c) =ln(c). Assuming a small per capia capial sock in period, 5 agens make no invesmen 5 As discussed below, small here means ha: k < (k=b) 1= ; 5

9 in human capial, and he inerior soluion for savings sais es he rs order condiion: 1=c y = r +1 =c m +1; which, subsiued in he lifeime budge consrain of he agen, implies ha: or, equivalenly, ha: c y = :5(w h y 0 + w +1h y 0 =r +1); s +1 = :5h y 0 (w w +1 =r +1 ): Combining his equaion wih he equilibrium condiion and he compeiive prices (3) generaes he equilibrium law of moion of he per capia capial sock: k +1 = Bk ; (9) where B = A[(1 )=(3 + 1= )]. Along he pah described by his law of moion, growh is fueled solely by physical capial accumulaion, and he per capia capial sock converges o a unique seady-sae k saisfying: k = B 1=(1 ) ; while human capial levels are consan and equal o h y 0 : Given he law of moion for he per capia capial sock in he neoclassical regime in equaion (9), agens will make no invesmens in human capial as long as k +1 < k =[ =(1 ) ], ha is, as long as: k < (k=b) 1= : Figure 1 illusraes he case of an economy forever locked in he neoclassical regime, since he seady-sae k is smaller han he hreshold k in Figure 1(a). As a consequence, aggregae human capial is consan over ime, as shown in Figure 1(b) Modern Growh Suppose here exiss a period in which, for he rs ime, he per-capia capial sock k reaches he hreshold above which agens sar invesing in human capial. Tha is: where B = A[(1 )=(3 + 1= )]. k 1 (k=b) 1= and k > (k=b) 1= : 6

10 As a consequence, he rs-order condiions associaed wih he period decision problem form a sysem of wo non-linear equaions in he wo unknowns (c y ;e ) which can be wrien as: and, u 0 (c y )=r +1 u0 (w h y r +1 + w +1 hy ¹(e ) r +1 cy r +1 e ); k 1 +1 =[(1 )= ]hy ¹0 (e )=[h y 2¹(e ))]=(w hy cy e ): The compeiive prices w +1 and r +1 can be calculaed from (3) and h y = hy 0. To illusrae he dynamics in his regime, consider he period uiliy u(c) = ln c and he simple human capial accumulaion echnology ¹(e )=(1+ e ). When k is above he hreshold (k=b) 1=, young agens in period make a sricly posiive invesmen in e in human capial, and se heir invesmen in physical capial such ha: [(1 )= ]h y = k 1 ; +1 since agens equae he reurn on physical capial invesmens o ha of human capial invesmens. I addiion, wih e > 0, he human capial of he cohor of agens born in period +1 is sricly greaer han ha of he previous young generaion since h y = +1 hy(1 + e ) >hy. In all successive periods, young agens coninue o equae he reurns on boh ypes of capial, so ha, for all : [(1 )= ]h y = k 1 +1 : As a consequence, afer he hreshold period, h increases over ime while k decreases, which implies ha he marginal produc of capial, w, increases over ime. I can also be shown ha, for all : e =[(1 )w h y (1 + 3 )= ]=[2 + 2 ]; so ha invesmens in human capial increase over ime since w h y rises. Noice ha oal savings in period is Ns +1, which is equal o Nk +1 h y (1 + e ) and herefore proporional o (1 + e ). This implies ha aggregae savings, in addiion o aggregae human capial, increase over ime, and proves ha growh in he modern regime is fueled by he join accumulaion of boh physical and human capial. In gure 2, he change of regime akes place in period when k in he neoclassical economy reaches he hreshold (k=b) 1= in gure 2(a). Afer ha period, boh aggregae human and physical capial increase over ime, as depiced in gure 2(b). 7

11 3 Longeviy and Growh 3.1 Healh and Longeviy This secion of he paper inroduces individual healh capial as a new variable endogenously deermined in he model. Healh capial, denoed b in he model, has several imporan characerisics. Firs, beer healh is more enjoyable; as a consequence, uiliy is assumed o be increasing in healh capial. Second, beer healh leads o higher life expecancy, and herefore increases he demand for consumpion goods. 6 A sligh modi caion of he model developed in he previous secion permis accommodaing hese wo feaures by de ning he period uiliy funcion over he consumpion good c and he sock of healh, denoed b, so ha he preferences of an agen are represened by he uiliy funcion: u(c y ;b y )+u(c m +1;b m +1); where u is C 2, sricly increasing, u 11 < 0, u 22 < 0, and u This las condiion simply imposes ha healh capial and consumpion are weak complemens. Young agens have he opporuniy o raise heir healh sock during mauriy by invesing some of heir rs period resources. Speci cally, an agen s sock of healh is assumed o evolve according o he following echnology: b m +1 = b y Z(m ); where m are he resources invesed in healh accumulaion during he rs period of he agen s life. The funcion Z is C 2, sricly increasing and concave. In addiion, i is assumed ha in he absence of healh invesmens he healh sock is unchanged (i.e., Z(0) = 1) and ha marginal invesmens yield nie reurns (i.e., Z 0 (0) = ±<1). Wihou loss of generaliy b y is normalized o one. 7 The budge consrain of a young agen is: w h y = c y + e + s +1 + m ; and he rs-order condiion associaed wih a sricly posiive choice of healh expendiures m is: u 1 (c y ; 1) = u 2 (c m +1;b m +1)Z 0 (m ); while he oher rs order condiions are unchanged. consrain in he previous equaion gives: Subsiuing he budge u 1 (w h y e s +1 m ; 1) = u 2 (s +1 r +1 + w +1 h m +1;Z(m ))Z 0 (m ): 6 This paper ignores he posiive conribuion of a good healh o labor produciviy. 7 Each generaion hus sars wih he same healh capial, alhough he model can be amended o allow for some healh spillover from one generaion o he nex. 8

12 For given values of e and s, he lef-hand side is sricly increasing in m (given he assumpion ha u 11 < 0), while he righ-hand side decreasing in m (given he assumpion ha u 22 < 0 and Z concave), so ha, generally, a simple condiion can be derived under which here exiss a unique soluion. This condiion is equivalen o ha of he agen s income or consumpion being above a paricular hreshold level, as illusraed by he following example. Consider he period uiliy: u(c; b) =ln(c µ b 1 µ )=µ ln c +(1 µ)lnb where 0 <µ<1; and he simple healh producion echnology: b m +1 =(1+±m ) " ; in which (±;") are produciviy parameers, and 0 <" 1. In his case, he rs-order condiion wih respec o he choice of healh expendiures is: µ=c y =(1 µ)±"=(1 + ±m ); which has a sricly posiive soluion if and only if he rs period consumpion of he young agen c y is above he hreshold level c min = µ=[(1 µ)±"], inwhich case agens inves he quaniy: m =[(1 µ)"=µ]c y 1=± (10) in healh. Noe ha he rs period consumpion hreshold c min depends negaively on ±": Recall ha prior o agens saring o inves in healh, an economy is eiher in one of he wo regimes discussed in he previous secion of he paper. Under boh regimes consumpion rises monoonically over ime, and he erm Epidemiological Transiion denoes he rs period during which consumpion rises above he hreshold level c min. Above his criical consumpion level, agens begin invesing in healh and longeviy increases. 8 As discussed in he inroducion, he Epidemiological Transiion is a criical feaure of he relaionship beween economic growh and he healh and life expecancy of an economy s populaion ha has been very well documened in he epidemiological and medical lieraure. The res of his secion demonsraes how he model can be used o undersand he observed di erences in he paern of his ransiion in various counries. 3.2 The Epidemiological Transiion I is imporan o noe ha he relaionship beween economic growh and healh and longeviy runs boh ways. Economic growh, and he associaed rise in income and consumpion levels, can a ec he healh saus of a populaion by inducing an Epidemiological Transiion afer which healh increases 8 The ndings in Fogel (1997) suppor he hypohesis ha he early decrease in moraliy was closely associaed wih improved consumpion and nuriion. 9

13 monoonically over ime. Reciprocally, invesmens in healh can a ec economic growh hrough he combinaion of he following wo channels. Firs, invesing in healh requires foregoing some amoun of consumpion and physical and human capial expendiures: I is herefore analogous o a negaive wealh e ec. Second, invesing in healh resuls in longer life expecancy, and hus leads o a shif of he demand for consumpion in he second period, which in urn alers he agen s incenives o subsiue away from consumpion in he rs period and oward accumulaing capial, hus a ecing growh in a posiive manner. How hese wo e ecs combine depends of course on he choice of primiives for uiliy and producion funcions in he model. Transiion During he Neoclassical Growh Regime. Suppose rs ha he ransiion akes place during he neoclassical growh regime, which happens if and only if consumpion during ha regime aains he hreshold level c min de ned in he previous secion. Agens hen inves in healh according o (10), and wih consan human capial levels (normalized o 1), he lifeime budge consrain becomes: (1 " + "=µ)c y + cm +1 =r +1 =1=± + w + w +1 =r +1 : Combining his wih he rs order condiion (5) associaed wih opimal savings gives: or, equivalenly: c y =(2 " + "=µ) 1 (1=± + w + w +1 =r +1 ); s +1 =(2 " + "=µ) 1 [w +1=± (1 " + "=µ)(w +1 =r +1 )]: Subsiuing he compeiive prices and he equilibrium condiion k +1 = s +1 =2 in he las equaion generaes a law of moion for per-capia capial sock pos he epidemiological ransiion given by: k +1 =[1=± + A(1 )k ]=[3 + 1= + "( 1+1=µ)(1 + )= ] =B 0 k (11) Aheimeconsumpioninheneoclassicalregimereacheshehreshold c min, agens sar invesing in healh and he law of moion for he per-capia capial sock hus changes from (9) o (11). As a resul, he economy converges o a new seady-sae, which can be shown o be higher if B 0 B, hais,if: k < µ=[±(1 + )"(1 µ)]: If ha condiion is sais ed, since he economy engages on a higher growh pah, here is an immediae increase in he rae of growh of per capia income, as shown in Figure 3 In Figure 3(b), he consumpion hreshold c min is reached in period e, a which he economy swiches o a higher growh pah in Figure 3(a). I is imporan o noe ha, because he epidemiological ransiion generaes an immediae jump in per-capia capia sock and pus he economy on a higher 10

14 growh pah, i may faciliae he ransiion from a neoclassical o a modern regime, because he hreshold k may be more rapidly reached during he higher growh pah. Furher, he epidemiological ransiion may help an economy reach a modern growh regime ha i would no have oherwise enered. The model in his paper hus leads o he imporan hypohesis ha healh is a very criical deerminan of long erm economic growh because i can accelerae or even induce he swich from a neoclassical o a modern growh regime. 9 Transiion During he Modern Regime. Alernaively, suppose ha he epidemiological ransiion akes place during he modern growh regime. Wih sricly posiive invesmens in healh, he lifeime budge consrain becomes: (1 " + "=µ)c y + c m +1=r +1 + e =1=± + w h y + w +1 h m +1=r +1 : Subsiuing he rs-order condiions wih respec o savings and invesmens in human capial (5) and (6) in he previous equaion leads o: c y =(1=± + w h y +1= )=(2 " + "=µ): Using his expression in he equilibrium condiion: k +1 1 = hy 2(1 + e )=[w h y +1=± (1 " + "=µ)c y e ]; and, given ha: k +1 1 =[(1 )= ]hy ; he opimal soluion for e is: e =[1=(1 + )][(w h y +1=± )(1 ) 2 = ]; where =1 1=(2 " + "=µ): As a consequence, he per capia human capial level rises over ime. The economy combines a modern growh regime wih sricly posiive invesmens in healh generaing increases in agens longeviy. In Figure 4(a) he ransiion o he modern growh regime occurs a, and is followed by he Epidemiological Transiion a e. Exogenous Transiion. Finally, here is also he possibiliy ha he economy does no reach he epidemiological ransiion endogenously hrough he growh process, bu ha his ransiion is iniiaed by exernal facors such as changes in healh echnology a ecing he healh parameers. Recall ha an increase in eiher ± or " leads o a lowering of he hreshold consumpion level c min a which agens sar invesing in healh. In Figure 4(b), he lowering of he hreshold c min below he seady-sae consumpion c of he neoclassical regime enables an economy o swich o a modern growh regime a. Wihou he exogenous change in healh echnology, he swich may no have been oherwise possible (unless c <c min ), and he economy would have been locked ino a regime of relaively low income, low educaion, and low healh Oher researchers have also argued ha a moraliy decline can foser he ransiion o a modern growh regime, alhough oher mechanisms were considered (see, for insance, Kalemli-Ozcan, 2000). 10 A povery rap similar o ha in Galor and Mayer-Foulkes (2002). 11

15 Figure 4(b) hus demonsraes ha changes in he availabiliy of healh and in he produciviy and coss of he healh secor can have imporan dramaic consequences for he long erm developmen of an economy. I also suggess ha fosering growh hrough policies aimed a increasing he rae of reurn on educaion may be bes achieved in combinaion wih healh policies. 3.3 The Theory of he Epidemiological Transiion The analysis and comparison of moraliy paerns in several economies has led Omran (1971, 1982) o formulae his Theory of he Epidemiological Transiion. This heory sars wih he premise ha moraliy is a fundamenal facor in populaion dynamics (Proposiion 1) and wih he observaions ha he epidemiological ransiion represens a long erm shif in moraliy from a regime of mosly infecious diseases o a regime of mosly degeneraive and man-made diseases (Proposiion 2). The epidemiological ransiion is shown o favor he young over he old and females over males (Proposiion 3) and o be closely associaed wih rising sandards of living and improved nuriion in he 19h Cenury, and improved medical and healh pracices in he 20h Cenury (Proposiion 4). The mos ineresing feaure of he Theory of he Epidemiological Transiion is ha hree 11 basic paerns of he ransiion emerge (Proposiion 5): The classical or Wesern model, he acceleraed model, and he delayed model. These hree paerns are shown o very well he hree scenarios of an endogenous ransiion during he neoclassical regime, an endogenous ransiion during he modern regime, or a ransiion riggered by exogenous facors. The Classical Model of Epidemiological Transiion (England, mos Wesern European counries). The moraliy paern follows hree sages. A pre-indusrial age of pesilence and famine generaes a cyclical populaion growh wih frequen peaks in moraliy is followed by an inermediae sage of recceeding pandemics in he middle or laer par of he 19h Cenury giving way o a gradual moraliy decline. A sage of degeneraive and man made diseases in he 20h Cenury corresponds o more precipious declines. Economic facors (improvemens in sandards of living and in nuriion in he 19h Cenury) were he primary deerminans of he classical ransiion, bu were laer augmened in he 20h Cenury by saniary improvemens, followed by medical and public healh progress. The Epidemiological Transiion closely parallels he demographic ransiion and Indusrial Revoluion and is herefore followed by a populaion explosion and by susained economic growh. In he model of his paper, he classical ransiion corresponds o he endogenous epidemiological ransiion during he neoclassical growh regime (See Figure 3). The Acceleraed Model (Japan). The ransiion follows a similar paer as he Classical Model, bu he changes in moraliy occurred a a laer sage of developmen and were more rapid. This corresponds o he endogenous ransiion aking place during he modern growh regime, as depiced in Figure 11 Four when couning he ransiional varian of he delayed model. 12

16 4(a). The Delayed Epidemiological Transiion (mos counries in Africa, Lain America, and Asia). The subsanial decreases in moraliy in hese economies are very recen. Public healh measures have been a major componen of a generally impored medical package ha pulled moraliy down while keeping feriliy high, hus generaing a populaion explosion. This paern corresponds o a ransiion riggered by changes in he exogenous parameers characerizing he healh echnology, as shown in Figure 4(b). 4 Conclusion I is clear ha economic growh has a direc impac on he healh and longeviy of a populaion hrough increasing levels of income, consumpion and healh invesmens. In addiion o his obvious link, a reverse mechanism hrough which he healh saus of a populaion, closely associaed wih longeviy or life expecancy, a ecs economic growh canno be ignored: Increased longeviy induces agens o spend more on capial invesmens, which in urn a ecs economic growh. Combining he channels o and from growh, his paper presens a model of he long erm ineracion beween economic growh and longeviy showing ha healh (longeviy) increases wih income, bu only above a speci c hreshold level, a which an economy undergoes an Epidemiological Transiion, and predics hree paerns for his ransiion. These hree paerns are consisen wih he empirical lieraure under he name of he Theory of he Epidemiological Transiion. In addiion, his paper derives he imporan hypohesis ha a healh ransiion can help a counry swich from a neoclassical growh regime o a modern growh regime. The paper also suggess ha healh policies in developing counries can have imporan consequences for long erm growh, and no only for he immediae well-being of he populaion, and ha inducing economic growh hrough policies aimed a increasing he rae of reurn on educaion may be bes achieved in combinaion wih healh policies. 5 REFERENCES Acsadi,G.andJ.Nemeskeri(1970)Hisory of Human Life Span and Moraliy, Akademiai Kiado, Budapes. Bloom, D.E. and D. Canning (2000) The Healh and Wealh of Naions Science, vol.287, February Fogel, R. (1997) New Findings on Secular Trends in Nuriion and Moraliy: Some Implicaions for Populaion Theory. in Mark Rosenzweig and Oded Sark, eds. The Handbook of Populaion and Family Economics Volume 1A Amserdam: Norh Holland, Galor, O. and D. Mayer-Foulkes (2002) Food for Though: Basic Needs and Persisen Educaional Inequaliy mimeo. 13

17 Galor, O. and O. Moav (2000) Das Human Kapial mimeo, Brown Universiy. Galor, O. and D. Weil (2000) Populaion, Technology, and Growh: From he Malhusian Regime o he Demographic Transiion American Economic Review 90, Galor, O. and D. Weil (1999) From Malhusian Sagnaion o Modern Growh American Economic Review 89, Grossman, M. (1972) The Demand for Healh: A Theoreical and Empirical Invesigaion. New York: Columbia Universiy Press. Haines, M. (1995) Disease and Healh hrough he Ages pp in The Sae of Humaniy (Julian L. Simon, ed.) Blackwell Publisher Inc. Hassan, F. A. (1981) Demographic Archaeology, Academic Press, Inc. Kalemli-Ozcan, Sebnem (2002) Does he Moraliy Decline Promoe Economic Growh? Mimeo, Universiy of Houson. Kremer, M. (1993) Populaion Growh and Technological Change: One Million B.C o 1990 Quarerly Journal of Economics 108, Lucas, R. (1988) On he Mechanics of Economic Developmen Journal of Moneary Economics 22, Mirman, L.J. (1971) Uncerainy and Opimal Consumpion Decisions Economerica, 39(1), pp Morand, O.F. (2001) Evoluion hrough Revoluions: Growing Populaion and Changes in Modes of Producion mimeo, Universiy of Connecicu. Omran, A.R. (1971) The Epidemiologic Transiion Milbank Memorial Fund Quarerly 49(1), pp Omran, A.R. (1982) Epidemiologic Transiion in Inernaional Encyclopedia of Populaion, Volume 1. (JohnA.Ross,ed.)TheFreePress. Van Zon, A. and J. Muysken (2001) Healh and Endogenous Growh Journal of Healh Economics, 20,

18 1(a) k +1 k 45 o Threshold Bk k* k* Fig. 1 NEOCLASSICAL GROWTH REGIME 1(b) K, H Nk* Nk Aggregae hreshold Seady sae Aggregae Physical Capial Aggregae Human Capial

19 2(a) k +1 k 45 o Bk Threshold k* k Fig.2 MODERN REGIME 2(b) K, H Nk Aggregae Physical Capial Aggregae Human Capial

20 3(a) k o Bk Bk k* k* k 3(b) c c* c* New seady sae Seady sae c min ~ Fig. 3 ENDOGENOUS TRANSITION DURING THE NEOCLASSICAL REGIME

21 K H K 4(a) H ~ ENDOGENOUS TRANSITION DURING THE MODERN REGIME c c min c* 4(b) New c min ENDOGENOUS TRANSITION DUE TO CHANGES IN HEALTH TECHNOLOGY