Health and Wealth: Short Panel Granger Causality Tests for Developing Countries

The world has experienced impressive improvements in wealth and health, with, for instance, the world’s real GDP per capita having increased by 180% from 1970 to 2007 accompanied by a 50% decline in infant mortality rate. Healthier and wealthier. Are health gains arising from wealth growth? Or, has a healthier population enabled substantial growth in wealth? The answers to these questions have serious policy implications. We contribute to understanding dynamic links between wealth and health by analyzing the relationship between health (as measured by infant mortality rate) and wealth (as measured by GDP per capita) for a panel of 58 developing countries using quinquennial data covering the period 1960 through 2005. We examine for causal rather than associative links between these fundamental macro measures of economic development. The panel enables us to examine for causal links using several methods that differ in how cross-country and temporal heterogeneity is imposed: cross-country homogeneity with temporal heterogeneity and cross-country heterogeneity with temporal homogeneity. Under the latter case, we consider sensitivity to assuming fixed versus random causal coefficients. In addition, we explore robustness of outcomes to level of economic development (as measured by national income) and inclusion of another covariate (education).