Access Type

Open Access Dissertation

Date of Award

January 2013

Degree Type

Dissertation

Degree Name

Ph.D.

Department

Economics

First Advisor

Allen C. Goodman

Abstract

This dissertation examines the interrelationship between financial development and health capital accumulation. While credit to GDP ratio, liquid liabilities to GDP ratio and market capitalization to GDP ratio are used as the proxies for financial development, health capital is represented by life expectancy, infant mortality and low birth weight. A simple static model in the utility maximization framework shows that financial development increases the medical care through income effect thus augmenting the health status. This is also supported by econometric analysis. Using various econometric models such as pooled OLS, fixed effect and instrumental variable approach, the study shows that higher level of financial development positively contributes to health capital accumulation in terms of higher life expectancy and lower infant mortality. But no such effect of financial development is observed on low birth weight.

Among various proxies of financial development, the credit to GDP ratio explains both life expectancy and infant mortality better. The effect of financial development on health outcomes is stronger in developing countries. This suggests a higher rate of return from financial development on health outcomes in these countries. It is also understandable that the higher level of financial deprivation in developing countries staggers the channels such as income and education, which contribute to health capital accumulation even in the short-run. Looking at the channels through which financial intermediation affects health outcomes, the study finds that income could be a better potential candidate in the developed countries and education in the developing ones. The impulse response analysis shows that financial shocks do not exhibit their immediate impact on outcome variables but show short to medium term impact on health spending.

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