The Impact of Health on Economic Growth: The Case of Tonga from 1970-2011

• Main Author: Kavapalu, Siaosi Duwai Rakai
• Language: en
• Published: University of Canterbury. Economics and Finance Dept 2014
• Online Access: http://hdl.handle.net/10092/9564

The vast impact of globalization has resulted in more liberalization, economic integration, and increasing international trade among countries. These changes are leading to higher economic growth and consequent impacts on the health conditions of the country. Health can be regarded as an addition to economic growth models. There has been a widespread development in the health economics discipline. However, the research on the impact of health on economic growth has been concentrated mostly in developed and developing economies, but there has been marked neglect of small open economies. This study aims to focus on the Island Kingdom of Tonga - a small open economy and a country that falls within the upper middle income category (World Bank, 2012). The study seeks to verify empirically the impact of health on the economic performance of the country. The analysis is based on time series data, the econometric techniques of single, autoregressive distributed lag model (ARDL) and the multiple equations framework, vector error correction method (VECM). The study found that there have been substantial impacts of health indicators (life expectancy, infant mortality and fertility rate) on the Tongan economy. A positive effect in terms of life ex-pectancy on economic growth led to an improvement of economic activity through additional years of longevity of the working age population. The dynamic, innovative technique also indi-cated a uni-directional causality between economic growth and life expectancy variable. The long run causality however, runs mainly from life expectancy to economic growth rather than in the opposite direction. A negative impact was found in the second health indicator (infant mortality) with uni-directional causality running from higher economic growth that may reduce the infant mortality rate. Finally, the fertility rate found a negative impact on economic growth in the long run with no Granger causality among the variables. Amongst those frameworks, the ARDL and VECM suggest that in such a small developing coun-try the quantitative impacts are also a novel and important approach in Tonga and may result in a significant impact on the economy for the next decade. The policy implication is that maintaining good health through higher life expectancy is associated with a positive impact on economic growth and this can also channel to other innovations, technological contributions to the country at large.