Health, Nutrition and Economic Prosperity: A Micro-Economic Perspective

PWP-CCPR-2002-003

Abstract

The positive correlation between health and economic prosperity has been widely documented. The extent to which this reflects a causal effect of health on economic outcomes is very controversial. Two classes of evidence are examined. Carefully designed random assignment laboratory and field studies provide compelling evidence that nutrient deficiency -- particularly iron -- reduces work capacity and, in some cases, work output. Confidence in these results is bolstered by a good understanding of the underlying biological mechanisms. Some random assignment studies indicate improved health services yield returns in the labor market. Observational studies suggest that general dimensions of nutritional status, such as height and body mass index, are significant predictors of economic success although their interpretation is confounded because they reflect influences of early childhood investments and family background. Energy intake and possibly diet quality have also been found to be predictive of economic success in observational studies. However, identification of causal pathways in observational studies is difficult and involves statistical assumptions about unobserved heterogeneity that are difficult to test. Illustrations using survey data demonstrate the practical importance of this concern. Furthermore, failure to take into account the dynamic interplay between changes in health and economic status has limited progress in this literature. Broadening random assignment studies to measure effects of an intervention on economic prosperity, investing in population-based longitudinal socio-economic surveys, and exploiting emerging technologies to better measure health in those surveys will yield very high returns in developing a better understanding of how health influence economic prosperity.