Health Status and Convergence in Developing Open Economies: Is Health Status Converging in Developing Economies?

Health Status and Convergence in Developing Open Economies: Is Health Status Converging in Developing Economies?

Tonmoy Chatterjee, Soumyananda Dinda
DOI: 10.4018/978-1-5225-0215-9.ch016
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This chapter delves into the relationship among different economic issues like economic growth, health status and international trade in the context of convergence literature. In this chapter we illustrate and provide arguments behind the convergence of health status in developing economies in the presence of open economy regime. In this respect we consider a panel data set of 17 developing economies of the time span 1960-2011. In the present study we have found convergence not only in measure of health care status but also in the measure of trade and openness and therefore we have dealt with such kind of complexities. Apart from these we have found that health status improves in the post liberalization period but cross-sectional divergence increases in post liberalization era.
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As the biggest industry sector in most emerging economies and in most developing countries, healthcare already represents a huge chunk of the gross domestic product (GDP). In recent years the importance of health sector as a potential engine of growth as well as for development for a developing economy like India has been argued by many contemporary economists. The health sector has shown a growth of 9.3% between 2000-2009, comparable to the sectoral growth of other emerging economies such as China and Brazil1. The total value of the sector was more than $38 billion, about 5.1% of GDP. Indian Healthcare market is estimated to touch US$ 77 billion by 2013. Healthcare industry accounted for 5.1% of India’s GDP in 2006. The compound annual growth rate of Indian healthcare sector was 16% during the 1990s and is expected to grow at a compound annual growth rate (CAGR) of 15% over the next 15 years. It is also expected to generate employment to 9 million people in 20122. This growth will create significant issues for employment and opportunities to grow businesses and economies in general. Globally, all health economies face similar challenges in terms of rising costs, clinician shortages and demographic shifts, as well as quality, access and safety issues. Additionally, new consumer technologies promoting greater patient power are creating fresh challenges and opportunities. Government financial incentives and regulations will make automation in healthcare practices a must. There is also an increasing need for hospitals to achieve cost efficiencies and provide evidence of effective use of information technology in healthcare practices. Action is required at all levels to change the way healthcare is delivered, and how it uses IT. New health IT systems must offer: software that supports the core medical processes, hardware that allows easy access to information at the point of care, and standards that make it easier to integrate different systems. The ability of governments to pay for healthcare is a continuing challenge.

Key Terms in this Chapter

Human Health: Health is the level of functional or metabolic efficiency of a living organism. In humans it is the ability of individuals or communities to adapt and self-manage when facing physical, mental or social challenges. The World Health Organization (WHO) defined health in its broader sense in its 1948 constitution as “a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.” This definition has been subject to controversy, in particular as lacking operational value and because of the problem created by use of the word “complete”. Other definitions have been proposed, among which a recent definition that correlates health and personal satisfaction. Classification systems such as the WHO Family of International Classifications, including the International Classification of Functioning, Disability and Health (ICF) and the International Classification of Diseases (ICD), are commonly used to define and measure the components of health.

s Convergence: It refers to the situation when the cross country values of dispersions over time is falling leading to fall in economic inequality.

Foreign Direct Investment: A Foreign Direct Investment ( FDI ) is a controlling ownership in a business enterprise in one country by an entity based in another country. Foreign direct investment is distinguished from portfolio foreign investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of “control”. According to the Financial Times , “Standard definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is a grey area as often a smaller block of shares will give control in widely held companies. Moreover, control of technology, management, even crucial inputs can confer de facto control.” [1] The origin of the investment does not impact the definition as an FDI, i.e., the investment may be made either “inorganically” by buying a company in the target country or “organically” by expanding operations of an existing business in that country.

Openness: Openness refers to the outward or inward orientation of a given country's economy. Outward orientation refers to economies that take significant advantage of the opportunities to trade with other countries. Inward orientation refers to economies that overlook taking or are unable to take advantage of the opportunities to trade with other countries. Some of the trade policy decisions made by countries that empower outward or inward orientation are trade barriers, import-export, infrastructure, technologies, scale economies and market competitiveness. The degree of global trade openness existing in countries is measured on a number of economic issues and tracked in the Open Markets Index (OMI).

International Trade: International trade is the exchange of capital, goods, and services across international borders or territories, which could involve the activities of the government and individual. In most countries, such trade represents a significant share of gross domestic product (GDP).

Developing Economy: A developing economy also called a less developed economy or underdeveloped country is a nation with an underdeveloped industrial base, and a low Human Development Index (HDI) relative to other countries. On the other hand, since the late 1990s developing countries tended to demonstrate higher growth rates than the developed ones. There is no universal, agreed-upon criterion for what makes a country developing versus developed and which countries fit these two categories, although there is general reference points such as a nation's GDP per capita compared to other nations. Also, the general term less-developed economy should not be confused with the specific least developed country.

Conditional Convergence: Absolute Convergence can be captured through the following instance, that is, lower initial GDP will lead to a higher average growth rate. The implication of this is that poverty will ultimately disappear 'by itself'. It does not explain why some nations have had zero growth for many decades (e.g. in Sub-Saharan Africa). Whereas, Conditional Convergence can be captured in the following manner, that is, a country's income per worker converges to a country-specific long-run level as determined by the structural characteristics of that country. The implication is that structural characteristics, and not initial national income, determine the long-run level of GDP per worker. Thus, foreign aid should focus on structure (infrastructure, education, financial system etc.) and there is no need for an income transfer from richer to poorer nations.

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