Health, education and endogenous growth

Abstract

The purpose of the paper is to show that, from a growth perspective, government resources can be spent in two different ways. Resources can be allocated to uses which support growth, and to uses which generate growth. We take the provision of health services as an example of the first type of use, and the provision of educational services as an example of the second. This enables us to integrate both types of uses of scarce resources in an endogenous growth framework and to derive the optimum mix of the provision of health and educational services both from the perspective of health as a complement to growth and health as a substitute for growth. The model illustrates that there is a trade-off between growth as such and the provision of health-services. It also shows that a slow down in growth could be expected to occur when the preference for health is positively influenced by a growing income per head or in the case of an ageing population. Finally, we show that the model can account for a 'growth take off' in countries which are too poor to save, and that this take off can be induced by 'just the right' amount of income transfer to those countries : too little aid doesn't seem to help at all, while too much aid unnecessarily burdens the long term solvability of the receiving country if aid is provided in the form of loans.