Academic journal article American Economist

Estimation of a Health Production Function: Evidence from East-European Countries

Academic journal article American Economist

Estimation of a Health Production Function: Evidence from East-European Countries

Article excerpt

I. Introduction

The countries of Eastern Europe have experienced extraordinary changes since the end of the 1980's when the socialist regimes were replaced by market-based economies. Many transformations have taken place during the last two decades and sizable improvements can be seen in different areas, but at the same time, these countries continue to face new challenges in the process of their transitions to the market economy and their efforts of integration into the western society. Even though Eastern European countries tend to have similar aspirations and problems, one cannot overlook the differences among them in terms of population size, level of income, level of development, and other social and economic characteristics.

The health care system is part of the overall reform agenda and this is no surprise considering its importance for the social wellbeing and its contribution to public health capital formation and economic growth. In one of its reports, the Commission on Macroeconomics and Health of the World Health Organization (WHO) estimates that a "10 percent increase in life expectancy at birth increases economic growth by at least 0.3-0.4 percent of gross domestic product per year" (Iliev and Suhrcke 2006). An important point to be noted here is that the changes and improvements of the health care system in the Eastern European countries are ongoing processes. During the communist regime, the health care system was centrally planned and administered; now, a more decentralized system is in place with more private providers and different forms of funding health care services (Rechel and McKee 2009).

Even though important progress has been made, most of the Eastern European countries still have a long way to reach the western countries' health care levels. The life expectancy at birth is rising in all countries at a different pace, but it is still below the level of western countries. For example, the lowest levels of life expectancy at birth in the European Union were in Romania (76.2 years) for women and in Lithuania (65.1 years) for men (OECD 2010). The infant mortality indicator is a mirror image of life expectancy, with higher rates for the newer members. On one side of the spectrum is Luxemburg with the lowest infant mortality rate of 1.8 per 1000 live births while on the other side are Romania and Bulgaria with 11 and 8.6 percent, respectively (OECD 2010). There is no surprise that the lowest level of health care expenditures as a share of gross domestic product is held by an Eastern European country. In 2008, Romania spent 6 percent of its GDP compared to Germany, Austria, Switzerland, and France which allocated more than 10 percent of their GDP (OECD 2010). The European Union has made efforts to implement policies that will help new members attain not only the economic status of the veteran states, but also the social, wealth, and national health levels.

Considering the importance of health care, this paper investigates the impact of the different economic, social, and environmental factors on the health status of member states in the Eastern European Bloc. Analyzing the health production function at the macro level can offer significant insights into determining the most efficient way of allocating resources for improving the overall health status of countries in the sample. Knowing the degree to which every factor contributes to the improvement of health status could help authorities to make decisions and design more appropriate policies with greater impact. The objective of this study is to estimate the impact of the macroeconomic, demographic, environmental, and life-style factors on health status (measured by infant mortality) for East European countries using panel data from 1997 to 2005.

The study is organized as follows. Section II provides a brief review of the literature. The model and data are discussed in Section III. The results and interpretations of the study are presented in Section IV. …

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