Socioeconomic status and health outcomes in a developing country

Abstract

Although the relationship between socioeconomic status (SES) and health is well documented for developed countries, less evidence has been presented for developing countries. The aim of this paper is to analyse this relationship at the household level for Fiji, a developing country in the South Pacific, using original household survey data. To allow for the endogeneity of SES status in the household health production function, we utilize a simultaneous equation approach where estimates are achieved by full information maximum likelihood. By restricting our sample to one, relatively small island, and including area and district hospital effects, physical geography effects are unpacked from income effects. We measure SES, as permanent income which is constructed using principal components analysis. An alternative specification considers transitory household income. We find that a 1% increase in wealth (our measure of permanent income) would lead to a 15% decrease in the probability of an incapacitating illness occurring intra-household. Although the presence of a strong relationship indicates that relatively small improvements in SES status can significantly improve health at the household level, it is argued that the design of appropriate policy would also require an understanding of the various mechanisms through which the relationship operates.