Abstract
The objective of the study investigates the effects of health on changing labor force participation during Pakistan’s economic transition in the 1980s, a period of several economic liberalization and international integration on the health and financial sectors. The study employed the autoregressive distributed lag (ARDL) co-integration technique to estimate the short- and long-run elasticities, while the Wald coefficient restrictions tests was used to determine the dynamic short-run causality between the variables over a period of 1975–2011. The study was limited to a few variables, including age dependency, health expenditures, trade openness, population per bed, life expectancy, gross capital formation, mortality rate, secondary school enrolment and labor force participation rate, in order to manage robust data analysis. The results suggest that infant mortality rate (IMR), gross capital formation (GCF) and secondary school enrolment (SSE) decrease the labor force participation rate in the long-run, as if there is one percent increase IMR, GCF and SSE, labor force participation decreases by 0.653 percent, 0.137 percent and 0.220 percent respectively, however, these results invert the relationship in short-run. The study also finds that health expenditures has positive and significant impact on labor force participation rate in the short-run, but this result disappear in the long-run. Trade liberalization has a positive effect in the short run, while a negative effect is observed in the long run upon labor force participation rate of Pakistan. The study confirms that Pakistan did not enjoy substantial growth benefits related to health care because human capital (secondary school enrolment), trade openness, public investment and infant mortality rate have a negative impact on labor force participation rate. These findings have important policy implications.Jel codesH51, I21, J21.
Highlights
Health is a key factor in a person’s ability to develop his skills and knowledge
The autoregressive distributed lag (ARDL) approach estimates (p + 1) k number of regressions in order to obtain optimal lag length for each variable in model, where p is the maximum number of lags to be used and k is the number of variables in the regression
The results suggest that infant mortality rate, gross capital formation and secondary school enrolment decrease the labor force participation rate in the long-run, these results invert the relationship in shortrun
Summary
Health is a key factor in a person’s ability to develop his skills and knowledge. The mix of skills, knowledge and capabilities that a person possesses (his human capital) is optimistically related to his productivity and the demand for his labor. Poor health is a hurdle towards developing or using skills, improving health could raise labor force participation and economic output (Holt, 2010a). Poor health reduces the number of hours worked, or lowers productivity when at work, and further output could be lost. Health is one of the most important assets a human being possesses. If these assets erode or are not fully developed, it can cause physical and emotional harm, resulting in obstacles in people's lives. Life cycle models have explained how health may determine the future income, wealth and consumption (Lilliard and Weiss, 1997; Smith 1999)
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