A second-generation endogenous model about health as determinant of economic growth

Abstract

The intrinsic value of health as a component of human capital has been increasing with the passage of time and, thus, its relevance as a determinant of economic growth. We present a second-generation endogenous growth model where health plays a crucial role as a determinant of economic growth. In this model, a higher level of the health status and, thereby, of human capital, produces different effects. On the one hand, it elevates the product of both final and intermediate (innovation) goods sectors. On the other hand, it enhances the capacity to learn, and strengthens the adaptability to changes and creative abilities, reducing the cost of each new innovation and generating a higher growth rate. Additionally, any improvement in the rate of depreciation of health status will reduce the cost of innovation, thus generating a higher growth. Thus, the model presented here captures the different channels of influence proposed in economic literature.