Faculty of Economics and Political Science
Third year- English Section -CHS
Spring 2018 –Methodology in Economics
Names of Group Members:
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Dr. Heba Youssef
The Effect of health on inclusive growth
“Case study of Egypt from 1990 to 2015”
For decades the main target for the countries to have robustness economy through having a higher Economic growth (GDP).but it has shown that after a certain point increasing in GDP will be offset by externalities such as increased inequality. So recently the most discussions go to make economic growth sustained and inclusive .According to IMF (2003) the inclusiveness of growth depends on the extent of access to economic and social opportunities, inclusive growth is associated with increased average opportunities available to the population and improvement in their distribution with increased average opportunities in education and health.
In Egypt ,like other countries, the main Concern for Policy maker was to accelerate the Economic Growth (GDP). So their efforts were be translated into two economic reforms programs the first one held in (1991 to 2004), they succeeded to achieve 5% Economic Growth GDP in 1997, through many policies like privatization, Expanded the base of sales tax and introduced the income tax, Reduced the Expenditure on the subsidies to be 1.6% 1998 rather than( 5.2%) in 1988 so the Government Deficit reached( 0.9%) in 1997. Although the higher economic growth, Egypt still has a lower standard of living and welfare, as poverty rate increased to be (21.6%) in 2009, despite the high Economic Growth in 2008-2009 (7.2%), the gap between classes becomes larger, unequal distribution of gains among citizens, absence of social justice and increasing the rate of unemployment .Because of the default of GDP to capture the standard of living and welfare of the country as it doesn’t take into account other social dimensions ( non-income inequality)like Health, Education and Employment. So the Egyptian policy makers looking for making the economic growth sustained and inclusive through the second Economic Reform program which held in 2014 and 2030 Vision .
Many Researchers Studied the Determinants of Inclusive Growth, one of them was Behrman (1996) as mentioned in the report of the Asian Development Bank stated that “Health one of the determinant of inclusive Growth”. Another researcher (Sen. 1985, Ruger 2010) stated that Health is a major determinant of well-being, offering individuals the capability to pursue activities which they find meaningful, as well as having intrinsic value. Since previous literature reviews focused on the impact of Health on Inclusive growth in several countries, this paper studies the impact of Health on Inclusive Growth in Egypt as Empirical study using time series analysis from 1990 till 2015.
This paper will be organized in four chapters Chapter 1 will be an Overview on the theoretical background on the relation between health and inclusive growth, highlighting the main theories and tackling the main indicators that measures both variable and conceptual framework used in this paper. Chapter 2 is a case study on Egypt from (1990-2015 ), analyzing the policies that had been taken in health sector to achieve inclusive growth along with a descriptive analysis to show the pattern of both variables .Chapter 3 detailed description of the econometric model which is employed in the study through applying the ARDL model to measure the relation between health and inclusive growth using Composite index as a proxy for inclusive growth including (Access to sanitation , Depth of food deficit, GDP per capita ,GDP growth rate , employment to population ratio(age +15) , Access to water and growth enrollment ratio, primary ,both sexual (%) ) and Life expectancy as a proxy for health with time annual series data .
The significance of the study in this paper focuses on the Egyptian case from 1990 to 2015 unlike the previous literature reviews, which concentrated on the whole African countries or Asian countries. Since there was a few previous literature reviews studied the impact of health with other economic variables on the inclusive growth, this paper covers the gap by handling the impact of health in addition to other variable on inclusive growth in the Egyptian case. Also, this study adds new variable which is health that is measured by life expectancy at birth .Moreover, this paper uses a composite indicator which includes (Access to sanitation , Depth of food deficit, GDP per capita ,GDP growth rate , employment to population ratio(age +15) , Access to water and growth enrollment ratio, primary ,both sexual (%) ) in order to measure inclusive growth in Egypt.
1) Applying the study on Egypt to examine the impact of health on inclusive growth.
2) Describe the role of the socioeconomic factors as a determinant of health that affects indirectly the inclusive growth.
3) specify a suitable Econometric model that explains the relation between Health and inclusive growth with the help of other controlling variable.
4) Recommend suitable policies to the Egyptian government for reducing health inequality and achieving inclusive growth through health sector.
Research Question: What is the impact of health on inclusive growth in Egypt from 1990 to 2015?
1) What are the incentives behind the shift from Economic growth to an Inclusive growth?
2) How can the health be a channel between socioeconomic factors and inclusive growth?
3) How could the health be associated with the Inclusive growth?
4) What were Egyptian inclusive growth policies that had been taken from 1990 to 2015 to promote health conditions?
5) What is the role of the inclusive growth in 2030 vision regarding health sector in Egypt?
Field of the research: Economic Development.
JEL Classification: I14, I15.
1) Assuming that there is one way relation between health and inclusive growth .2) Assuming that health is the independent variable and the inclusive growth is the dependent variable.
3) Assuming that there is one way relation between health and socioeconomic factors whereas those socioeconomic factors affect health.
‘No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable It is but equity, besides, that they who feed, cloth and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged’Adam smith (1974) in his book wealth of nation..
Then the role of inclusive growth as engine and source to promote equality and eliminate poverty have a great consideration recently, all the SDGS plans emphasis on the contribution of inclusive growth to achieve the prosperity and equally sharing of gains among citizens and among all sectors in the country.
Many literature reviews focused on analyzing the relationship between health and economic growth as stated in economic growth theories.
(Weil, 2013) this paper studied the impact of health on economic growth .it represented the magnitude of health impact on economic growth. it also explained causality relationship between income and health .one of its main contributions that it explained change in cross –sectional relationship between income and health due to health technology .also it focused on impact of growth in health on utility rather than income. This research used descriptive analysis to explain these relations and Conclude that correlation between income growth and change in life expectancy( as an index for health ) is weak in short run .while in very long run both are indeed correlated .
Since the higher economic growth doesn’t reflect equally among citizens also there is a gap between classes, so there is an intensive need for new era of inclusive growth.
Dividing the theoretical into two vital periods (2001 to 2010) and (2011 to 2017)
First period from 2001 to 2010
(Asian development bank(ADB),2007) argued that inclusive growth is the overarching goal because of the income and non-income inequality that can be seen in the Asian countries since inclusive growth is associated with the creation of equal access to opportunities .Also this paper tackled a development strategy which is main aim to achieve inclusive growth divided into two mutually reinforcing strategic .First, Acquiring high and sustainable growth in order to create economic opportunities .Second, social inclusion to ensure equal access to opportunities by expanding Human capacities which means investing in education , health and other social services . Moreover, improved health and nutrition have a direct effect on labor productivity and individual’s earning capacities particularly among poor .In addition Health- related shocks are important factors that push people into poverty.
(Ali and Hyun 2007) , This paper used the concept of social opportunity function to measure inclusive growth through opportunity curve that has one to one positive relationship with social opportunity function .this study applied in Philippines used Annual poverty indicator survey (APIS) , This paper concluded that there is positive relation between equal distribution of social services and inclusive growth.
Second period from 2011 to 2017
Stuart (2011) ,This paper represented that economic growth contributed effectively in reducing poverty rate in developing countries but it failed to achieve equality .so it represented case studies of three countries (Brazil – Viet Nam –and Ghana) then provided some suggestions to introduce suitable environment for inclusive growth through redistributive agenda GOV has to redistribute its expenditures on basic services including health and education to provide increased opportunities for poor –macroeconomic prudence government must set moderate levels of inflation ,debt and deficit –policy environment that stimulate pro-poor private investment
(Asian Development Bank (ADB ), 2011) discussed the key indicators for inclusive growth( 35 indicators that measures poverty and inequality ,income and non-income, economic growth and employment, key infrastructure endowments, access to education and health, access to basic infrastructure utilities and services, gender equality and opportunity, social safety nets, and good governance and institutions) in 48 ADB member countries in Asia and pacific region that had been grouped into developing and developed countries using a qualitative method (descriptive analysis) and data provided from international statistical agencies or national statistical agencies (depending on data availability) from 1999 to 2009 and stated that life expectancy at birth and government expenditure at health as a proxy for health sector are one of the key indicators for inclusive growth as inclusive growth requires equal opportunities and so equal access to health care
(Adedeji, Huancheng Du and Afari 2013) They focused on concept of social opportunity function to study the impact of social and economic opportunities on inclusive growth in some African countries (Cameron –Ghana –Mozambique –Tanzania- Zambia). Since many developing countries that achieved economic growth still suffer from income inequality and unequal opportunities so the main objective of this study was to achieve equity in providing opportunity combined with economic growth especially, education and health opportunity. The most important findings of this paper that it used opportunity function as a measurable for inclusive growth. (Using opportunity curve that reflected inclusive growth in quantitative method). The opportunity curve can also be useful in dynamic analysis that can be explained through shifts in opportunity curves between two periods. Concluding: upward sloping opportunity curve for primary education, secondary education and health care services.
(Abou Ali and Abou Ali,2014) their paper assess the inclusive growth trend in Egypt from 1991 to 2011 and they argued that despite the reforms to stabilized economy in 1991 there are negative impacts on different aspects as it appears in slow GDP ,social injustice, escalating unemployment and raising in poverty.They establish an inclusive growth index which include (Economic growth ,employment productivity, economic infrastructure ,poverty ,equity ,human ability ,social protection)The main finding of the paper how to fulfill inclusive growth in Egypt through suggested policies.
(Organization for Economic Co-operation and Development (OECD), 2016) examined the impact of health care system on inclusive growth in the 35 OECD countries from 2010 to 2015 using a qualitative method (descriptive analysis) and data provided from OECD statistics about Sickness absence incidence , Average duration of sickness absence, Presenteeism incidence Percentage , growth hourly earnings by health status and Employment in health and social work as a share of total employment from the 35 countries and found that providing a well-established health system will enhance the economic growth and enable it to be more sustainable and inclusive as a well-health employees are more productive at work .Also health sector provides more job opportunities and by the way increases the employment.
(African Development Bank Group (AFDB ),2016) it explored the impact of health indicators on inclusive growth separately in 178 African countries using nine health indicators (depending on international available data) divided into three main pillars which are the quantity of health care services, the quality of health care services, the accessibility (equal or unequal access) to health care service building an inclusive health index and through applying two different methodologies which are the Totally Fuzzy Analysis (TFA) and Principal Component Analysis (PCA) through qualitative method (descriptive analysis) .And the result proved that health indicators affect positively inclusive growth as it shown that health is a key concept for an inclusive development .It also showed that African has the worth performance in inclusive health index.
(James C, M.Devaux and F.Sassi 2017) , This paper studies relation between health and inclusive growth .its aim is to reach to method that enables government to achieve inclusive growth .the study is applied in35 OECD countries from 1990 till 2015 .this paper focused on two way relation between income and socioeconomic factors with health , This paper concluded that there is direct and indirect relation between health and inclusive growth . Indirect relation through impact of education and income on health. Direct relation through positive impact of health on inclusive growth . (Asian Development Bank (ADB),2017) according to the Asian development bank (ADB) Strategy 2020. In this strategy ADB recognized the important role health plays in fostering and promoting the inclusive growth in 8 countries in central and west Asia region (Armenian ,Azerbaijan ,Georgia ,The republic of Kazakhstan ,Kyrgyz ,Uzbekistan ,Tajikistan ,Turkmenistan),the relation between health and inclusive growth, identifying approaches and propose the guiding policies to reach a better impact of health policies. in 2014, as a result of the Mid-Term Review of the Strategy 2020, The review proposed ADB will increase the health sector investments from 1-2% of total financing in 2014 to 3-5% of total financing by 2020.
As shown above most of theoretical literature emphasis on the failure of economic growth to reflect equality in gains among citizens and sectors so inclusive growth as new concept appears to Economy context to overcome the drawbacks of economic growth, also most of literatures focus on indirect relation between health and inclusive growth through social opportunity function and a direct positive effect of health on inclusive growth. Most of studies done in group of countries like (African, Asian and OECD countries) conclude that health one of the determinant of inclusive growth.
Most of previous literature focused on the impact of health on economic growth, there are some of them investigate the role of health sector in fostering economic growth.
(Bloom, Canning and Sevilla, 2001) examined the contribution of human capital to economic growth and considering health as crucial aspect of human capital (using life expectancy as proxy for health) applying quantitative method through constructing an autoregressive model that modeling output as a function of inputs (labor force, work experience and health) and technology using data from 1960-1990 about 62 developing and developed countries. And found that health has positive and statistically significant impact on economic growth due to its impact on labor productivity.
(Raza ,Majeed and Islam ,2013) , This study focused on significant relation between health indicators and economic growth in Pakistan applying the following econometric model (Ols Method and Granger Causality technique) during period 1980-2012 , This paper concluded the significant impact of life expectancy ,fertility rate ,investment on sector of health on GDP per capita and positive and the insignificant impact of health expenditure on economic growth .
Dividing Empirical literature that tackle the impact of health on inclusive growth into two vital periods, the first (2001: 2010) and the second (2011:2017)
The first period (2001: 2010):
(Klasen,2010), Since high rates of economic growth in many Asian countries is not accompanied by equal distribution of income .so Asian Development Bank (ADB) developed strategy to achieve inclusive growth rather than focusing on reducing poverty rate that could be associated with inequality .Also (ADB) tried to find clear indicators to be able to evaluate inclusive growth .this paper concluded that country- level indicators that evaluate performance of projects that applied to achieve inclusive growth is too crude But there is difficulty to analyze micro data for each project . So ADB suggested evaluating for each project goals in terms of beneficiaries then making comparison with an inclusive growth agenda.
The second period (2011: 2017)
(African Development Bank(AFDB),2016) offered and applied a methodology for computing single composite index for inclusive growth which means estimation for a single inclusive growth estimator using the database of 153 countries to understated the nature of the growth in the North African countries in two sub periods 2001-2005 and 2006 -2010 by using Additive or Multiplicative method (relied on aggregate average ranking for 153 countries in total 14 selected areas with combing growth with other dimensions like health .Moreover ,The index contain around 30 indicators that measures growth, labor force ;employment, health and demographic, education, safety nets and distribution, social cohesion, Gender , Environment and spatial aspect Governance .so it proved that health can be one of the indicators that measure inclusive growth.
(Telle and Alimi, 2016) their paper Demonstrated by using the fixed effect method in panel regression model that health and population growth are the determinants of inclusive growth in selected 14 countries in Africa (Angola, Burkina Faso, Cameroun, Cote d’Ivoire, Egypt, Ethiopia, Kenya, Madagascar, Malawi, Mali, Niger, Nigeria, Sudan, and Uganda).from 1995 to 2012 . They do a Descriptive analysis of variables like (growth rate of real total health expenditure per capita, initial income per capita, real net official development assistance, total government expenditure and population growth) and have done a correlation matrix between variables they found a positive relation between inclusive growth and health spending and per capita income.Their findings indicate that adequate finance of health sector is essential to improve the poor growth in Africa countries ,also it found that the population growth deteriorate the achievements of inclusive growth so they had to develop new strategies to get benefit from the raise in population to avoid any regressive effects in inclusive growth.
(Chouchane and Karagueuziana,2016) the aim of this paper to focus on inclusiveness of health sector and to measure the inclusiveness of health Impact separately (through new index of inclusiveness of health measure the( quality ,quantity and accessibility of health sector ) across 178 countries, also their empirical study based in two different methodology totally fuzzy and the principal component analysis which are compared to robustness purpose ,they also recommend new policies to Africa region because of poor growth there to enhance and facilitate the universal coverage of health sector.
(James , Devaux and Sassi 2017), This paper studies relation between health and inclusive growth .its aim is to reach to method that enables government to achieve inclusive growth and to reduce inequality in providing health care services .the study is applied in35 OECD countries from 1990 till 2015 .this paper focused on two way relationship between income and socioeconomic factors with health using health production function , The study concluded that there is direct and indirect relation between health and inclusive growth . Indirect relation through impact of education and income on health direct relation through positive impact of health on inclusive growth.
(Ali and Hyun ,2007) tackled efforts to define inclusive growth using new methodology in Philippines that is social opportunity function like social welfare function depending on 2 factors (average opportunities & how opportunities are distributed on population) using opportunity curve that has one-to-one relation with social opportunity function and found a positive relation between them, tried to prove empirically and quantitatively that growth doesn’t mean that people are benefiting equally , Inclusive growth is measured in this paper using the mentioned function based on Philippines’s Annual Poverty Indicator Survey (APIS) 1998 and it is found that Inclusive growth maximize social opportunity function , but they didn’t relate the study with different periods using micro data.
(Oluseye, Gabriel ,2017) they investigate short and long run effect of the determinant of inclusive growth ( the explanatory variables) which are variables which are initial trade openness (TOP), foreign direct investment (FDI),expenditure on education (EDUEX), gross fixed capital formation (GFCF), population growth (POPG), general government financial consumption expenditure (GGFCE),and inflation (INF) in addition to the inclusive growth variable (initial income) itself in Nigeria from 1981 to 2014 using quantitative method applying ARDL model and error correlation method (ECM) depending on annual data about Nigeria and found that there is a long run positively significant relation between inclusive growth and other explanatory variables indicating that whose explanatory variables are the determinants of inclusive growth in Nigeria.
As shown above main findings from most of empirical literature is proved that health is a determinant of inclusive growth also the positive effect of health on inclusive growth as theoretical studies proved, also most of literature had been done in group of countries (African, Asian and OECD countries) concentrated on the role of inclusive growth to promote equality and achieve prosperity .the studies differ from the methodology they follow and they also use different indicators to combine in the inclusive growth composite index.
Methodology ; Data:
To find the long run effect of health on inclusive growth an Autoregressive Distribution Lag(ARDL) Bound Testing Approach is used in order to follow- up the objectives of the study .Because of it’s flexibility with small sample study .Also it allows for different order of integration .Moreover ,using (ARDL) model allows for regressing inclusive growth on its past values therefore it will be able to tackle how the past values of inclusive growth affects its current values .As a result of using annually time series data 1990-2015 (ARDL) model regress inclusive growth not only on the current controlling variables but also on the past values which give more accurate long run effect.
In measuring the impact of health on Inclusive growth this study used life expectancy at birth index as a proxy for health .On the other hand, a composite index as a proxy for inclusive growth since this composite index is consist of seven indicators which are Access to sanitation , Depth of food deficit, GDP per capita ,GDP growth rate , employment to population ratio(age +15) , Access to water and growth enrollment ratio, primary ,both sexual (%).A sum standardization approach is used to construct the composite index and the rule( (Indicator value- The minimum indicator value) ÷(maximum value- minimum value)) is used to standardized the values that has a positive direction (Access to sanitation , GDP per capita ,GDP growth rate , employment to population ratio(age +15) , Access to water and growth enrollment ratio, primary ,both sexual (%) ) and the rule ( |The Indicator value – The maximum value| ÷( maximum value- minimum value)) is used to standardized the values that have a negative direction which is(Depth of food deficit). The reasons behind choosing this indicators particularly is due to the availability of this indicators data in Egypt . Also the composite indicator lies between (0-100). And since it allows for all seven indictor be in the same positive direction which means any increase in the value of the composite index means a high value in inclusive growth.
The data used in the study is secondary annually time series data from 1990-2015.
Source of data Data
World Bank national accounts data GDP per capita
World Bank national accounts data GDP growth rate
World Bank national accounts data Employment to population ratio(age +15)
World Bank national accounts data Access to water and growth enrollment ratio, primary ,both sexual (%)
Egypt data portal Access to sanitation (%)
Egypt data portal Access to water(%)
World Bank national accounts data Depth of food deficit
World Bank national accounts data Life expectancy at birth
World Bank national accounts data Initial trade openness
World Bank national accounts data Foreign direct investment
World Bank national accounts data Expenditure on education
World Bank national accounts data Gross fixed capital formation
World Bank national accounts data Population growth
World Bank national accounts data General Government financial consumption expenditure
Central Bank of Egypt Inflation
?t*=?0+?1?t +?2Xt+?3Zt+?t * ?t* stands for inclusive growth which is measured by composite index.
* ?t stands for initial level of income.
* Xt stands for vector of controlling variable (Initial trade openness, foreign direct investment, expenditure on education, gross fixed capital formation, population growth, general government financial consumption expenditure , inflation)
* Zt Stands for health which is measured by life expectancy.
* ?t stands for error term .
By taking the natural log for all variables in the model (dependent &independent ) in order to avoid the multicollinearity problem.
?ln?t*=?0+i=1n?1?ln?t+i=1n?2?lnXt+i=1n?3?lnZt+?t Research Outline:
Chapter 1 :1- Introduction and Background
Illustrating the development of growth concepts starting from economic growth reaching inclusive growth concept
Reviewing or explaining theories that tackled relation between inclusive growth and health
Chapter 2 :2- Egypt as case study
Descriptively presenting inclusive growth in Egypt 1990-2015
government’s efforts in health sectors through supportive policies to achieve inclusive growth
Chapter 3 :3- Methodology
approaches or methodology used to accurately define inclusive growth
Descriptive data to understand the relation between inclusive growth and health
Estimated analysis of the relation between health and inclusive growth
Chapter 4 :
Conclusion and summary
Recommendations for Egyptian government