The Impact of Health Investment on Economic Progress

The Impact of Health Investment on Economic Progress

As a clear and informative journalist reporting on long-term trends in human well-being, the data collected by the Our World In Data group provides compelling evidence that investments in both health and education are fundamental drivers of national economic progress. These investments do not just improve quality of life; they are integral to a society’s capacity for sustained economic growth and the successful transition from poverty to prosperity.

Here is a look at the key developments and most interesting datapoints illustrating this influence:

I. The Impact of Health Investment on Economic Progress

Research consistently shows a powerful connection between a nation’s investment in health and its long-term economic trajectory, often expressed through productivity and resilience.

Key Developments:

1. Correlation with Income and Life Expectancy: At a cross-country level, national income is the strongest predictor of healthcare spending. Conversely, as countries get richer, per capita expenditure on healthcare tends to increase, leading to higher life expectancy,. This relationship, seen in charts comparing life expectancy against health expenditure, follows a pattern of “diminishing returns,” meaning the proportional highest gains are achieved in countries with low baseline levels of spending.
2. High Returns at Low Baselines (A Key Datapoint): A particularly interesting finding from Our World in Data is the evidence that the proportional decline in child mortality associated with a proportional increase in health expenditure is remarkably similar across rich and poor countries,. This suggests that putting resources into basic health yields huge returns in lives saved—and thus human capital—pretty much across the board, even if a country is starting from a very low level of spending.
3. Fueling the Demographic Transition: Improvements in public health, such as access to sanitation, vaccines, and healthcare, are critical in launching the demographic transition,. This is the process where high mortality rates (especially child mortality) fall first, followed eventually by a decline in birth rates,. This transition is identified as the “most important change in economic history,” moving societies from a zero-sum economy—where high mortality rates meant that human effort was constantly offset by death—to a positive-sum economy capable of sustained growth. Declining child mortality, in particular, reduced the need for families to “hoard” children, leading them to prioritize the “quality” (education and health investment) of fewer children over the “quantity,” further accelerating development,,.

II. The Role of Education Investment in National Prosperity

Widespread education, particularly literacy, is regarded as both a requirement for and a result of national progress.

Key Developments:

1. Enabling Innovation and Productivity: Improvements in literacy and widespread school education are recognized as essential achievements that both enabled and were required by the progress achieved in recent generations,. Economic growth relies on developing new technologies and efficiently utilizing them, tasks which require an increasingly better-educated population.
2. Reducing Inequality and Boosting Social Returns: The global expansion of education in the 20th century resulted in a historical reduction in education inequality across the globe, with inequality going down every year between 1960 and 2010 for all age groups and regions,. Education, financed largely through public expenditure, generates positive externalities for society beyond private gains (like higher wages),. Individuals with higher educational attainment are more likely to report desirable social outcomes, including higher interpersonal trust and political participation, contributing to a stable, functioning society necessary for economic activity,.
3. Gender Equality and Fertility Decline (A Key Datapoint): One of the most significant influences of education on economic progress is through women’s empowerment, particularly via access to education. Better-educated women have higher opportunity costs associated with childrearing, leading them to desire fewer children,. Increased women’s education, coupled with declining child mortality, strongly drives the decline in fertility rates,. This transition helps countries realize the “demographic dividend,” where a smaller proportion of dependents relative to the working population frees up resources for economic growth. The sources note that globally, where women have more than eight years of education, the fertility rate is below four children per woman, and often below two.
4. Efficiency of Education Spending: While national expenditure on education does not perfectly predict learning outcomes—suggesting the input mix matters significantly,—research indicates that improving the quality of teachers (e.g., through experience and education) tends to be more effective in boosting learning outcomes than simply increasing the number of teachers per pupil,. Furthermore, policies that incentivize student attendance, such as conditional cash transfers, or interventions that target health problems, like treating intestinal worms, can be particularly cost-effective ways to increase school attendance in developing countries,,.

The influence of investments in health and education on national economic progress is not merely directional—it operates through several complex feedback loops related to demographics, human capital efficiency, and public finance, which the research collected by Our World In Data illustrates vividly.

Here are further insights and interesting data points detailing how these investments reshape a nation’s economic landscape, often serving as prerequisites for sustained growth and the decline of extreme poverty:

I. Health Investment and the Economic Returns to Human Capital

The evidence confirms that improving health conditions acts as a powerful lever for national income growth, especially in the poorest countries.

Key Developments in Health Financing and Returns:

1. Diminishing Returns Principle (A Key Datapoint): While there is a robust and strong correlation between higher healthcare expenditure and higher life expectancy, this relationship exhibits “diminishing returns”. The proportional highest gains in life expectancy are achieved in countries with low baseline levels of spending. For instance, the data shows that the proportional decline in child mortality associated with a proportional increase in health expenditure is remarkably similar across rich countries in Europe and poorer countries in Africa, suggesting high returns to basic health resources universally.
2. Health Financing and GDP: At a cross-country level, a nation’s income (GDP per capita) is identified as the strongest predictor of its healthcare spending. Sophisticated economic models further confirm that the effect of per capita GDP on expenditure is clearly positive and significant.
3. Financing Universal Coverage: The ability of countries to finance universal health coverage is significantly tied to their capacity to increase domestic resources. Research suggests that increased tax revenue is an important statistical determinant of progress toward universal health coverage, particularly in nations with low tax bases.
4. The Famine Link: Sustained economic progress is underpinned by stability. The disappearance of major, catastrophic famines, especially since the mid-20th century, is cited as an incredibly positive long-term trend. This decline is directly linked to better healthcare and sanitation, as well as the overarching global reduction in extreme poverty, which increases resilience against crop failures and localized shocks.

II. Education as a Multiplier of Economic Potential

Public investment in education directly impacts economic progress by fostering widespread literacy and addressing societal inequalities that otherwise limit productivity.

Key Developments in Education Attainment and Efficiency:

1. The Foundation of Literacy: Widespread literacy is recognized as a key skill and measure of education necessary for modern progress. Only about one in ten people could read and write globally in 1820; this has dramatically reversed, with only about one in ten remaining illiterate today. This rapid expansion, particularly after the mid-20th century, was heavily driven by public funding.
2. Efficiency in Education Spending: While increasing public funding for education is common globally, the effectiveness of spending is critical for economic outcomes. Data suggests that improving the quality of teachers (through experience and education) tends to be more effective in boosting learning outcomes than simply increasing the number of teachers per pupil. This insight is consistent with international testing results showing countries that prioritize teacher quality over smaller class sizes perform better.
3. Reducing Inequality in Education: The expansion of global education, largely publicly funded, led to a historical reduction in education inequality globally between 1960 and 2010. However, in contrast to high-income countries where private contributions primarily fund higher education (a generally progressive pattern), many low-income countries see households contributing proportionally more to primary education costs, creating a regressive distribution of the financial burden that hinders equal opportunity.

III. The Demographics of Economic Growth: Health and Education Reducing Fertility

Investments in health and education interact critically to drive the demographic transition, which is central to long-term economic development.

1. The Child Mortality Link to Fertility: High child mortality rates historically led parents to have more children than they desired as a form of insurance, engaging in “hoarding” and “replacement” behaviors. As child survival improves due to health investments, the motivation for high fertility diminishes, leading to smaller family sizes and eventually stabilizing population growth.
2. Women’s Education and Opportunity Cost: The level of women’s education is one of the most important predictors for lower fertility rates. As women gain more years of schooling, their opportunity costs for raising children rise, leading them to pursue fewer children. This shift creates a reinforcing cycle: better-educated women have fewer children, increasing the quality of investment per child (the “quality” over “quantity” trade-off) and enhancing female labor force participation, both of which boost economic productivity. The evidence shows that where women have on average more than eight years of education, the fertility rate is typically below four children per woman, often dropping below two.
3. The Decline in Poverty (A Key Datapoint): Economic progress, fueled partly by these investments, has led to a remarkable decline in extreme poverty (those living on less than $2.15/day). However, the scale of the remaining economic challenge is stark: even using a poverty line of $6.85 per day (typical of upper-middle-income countries), 47% of the world still lived in poverty as of 2018, rising to 84% living on less than $30 a day. This highlights that while progress is real, sustained investments in health and education are still urgently required to lift billions more into true economic security.