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Working Paper 91 - Health Expenditures and Health Outcomes in Africa
The role of human capital in fostering economic development is well recognized in the literature. Thus, the justification for higher government expenditure on human capital development is often based on its impact on (a) individuals’ lifetime incomes (i.e., the social rate of return) (see, for example, Anyanwu, 1996, 1998); (b) economic growth (Levine and Renelt, 1992; Mankiw el al., 1992; Barro and Sala-i-Martin, 1995; Barro, 1996a, b; and Sala-iMartin, 1997; and (c) fostering economic development and poverty reduction in general (Romer, 1986; Lucas, 1988; Squire, 1993; Ravallion and Chen, 1997; Sen, 1999; and Schultz, 1999. Better health enhances the effective and sustained use of the knowledge and skills that individuals acquire through education (Schultz (1999)). Barro (1996b) further argues that better health can reduce the depreciation of education capital, and thus increases the favorable effect of education on growth. Arjona et al. (2001) find that although there is no clear impact of social spending on growth at the aggregate level, there exists a positive association between certain types of social spending (albeit excluding many forms of education and health outlays) and growth. A more recent study by Gyimah-Brempong and Wilson (2004) finds a positive and robust link between investment in health and growth in both sub-Saharan African and OECD countries.