Health Adjusted GDP (Hagdp) Measures of the Relationship between Economic Growth, Health Outcomes and Social Welfare

Abstract

Welfare economic analysis of health issues and policies can provide well balanced orderings of the state of the economy. This paper provides an innovative framework for welfare economic analysis of the relationships between economic growth, health outcomes and welfare for both a developing and a developed country. Economic growth can increase health outcomes and welfare but its influence is limited by biological laws. Further, achieving economic growth may have negative externalities which reduce health outcomes (particularly when biological health limits are reached). A new health adjusted GDP indicator to investigate the relationship between economic growth, health outcomes and welfare in both a developing and developed country using choice perspectives is developed in this paper. This new approach to welfare analysis is also based on cost-benefit analysis and systems analysis and is called the choice approach. The importance of good health is crucial when determining welfare. The major limitation of many health-based indicators is that they can fail to adequately consider welfare issues, such as equity and efficiency. Social choice theory allows optimal health outcomes to be fully considered in terms of equity and efficiency when determining the impact of economic growth on welfare. Social choice theory incorporates the various social concerns that are not adequately captured using individual preference satisfaction techniques. This paper analyses the health outcomes resulting from economic growth (costs and benefits) using Thailand and Australia as case studies, from 1975 to 1999. Two health adjusted gross domestic product (HAGDP) indices are prepared in this paper by adjusting GDP to reflect the welfare impacts of achieving economic growth on health outcomes. This paper shows that stark differences exist between the relationships of economic growth, health outcomes and welfare between developing and developed countries - economic growth has limited net health outcome benefits at certain stage of a countries development, yet is very important at other times. This suggests that utilising the choice approach theory when determining the impact of economic growth and health on welfare provides an intuitively correct measure.