Health Capital Measurement and Economic Cost of Disease: A Case of HIV/AIDS Prevalence in OECD Countries

Abstract

This paper examines the importance of health capital measurement in accounting for the economic cost of health problem by analyzing the case of HIV/AIDS prevalence among developed countries. The growth equation is derived from the augmented Solow model and estimated using a pooled cross sectional data of 20 OECD countries during the period of 1975 to 2000. Potential endogeneity problem due to the bidirectional relationship between health capital and the growth of national income is dealt with Two Stage Least Squares (2SLS) method. We compare the performance of two proxies for health capital, ‘infant mortality rate’ (IMR) and ‘health expenditure per capita’. Findings show that the choice of health capital measure makes a critical difference in the estimated effect of HIV/AIDS on the economic growth. 20 additional incidences of HIV/AIDS per million populations is associated with 0.20% reduction in the growth rate of GDP per capita in the health expenditure model, while the IMR model yields no statistically significance. It suggests that a careful discretion on health capital measurement is necessary to correctly assess the economic cost of health problem, especially among developed countries.