Health, Mortality, and Economic Development Jocelyn Finlay *† School of Economics College of Business and Economics HW Arndt Building 25a Australian National University 0200 Australia fax: +61 2 612 55124 email: Jocelyn.Finlay@anu.edu.au June 2, 2006 Draft Abstract The role of health in economic development is tested using three empirical approaches: a direct labour productivity effect, an interactive effect, and an incentive effect. Using proxies for health such as access to sanitation facility, clean water, immunisation, and adult male mortality, higher levels of health are hypothesised to promote higher economic growth as healthier workers are more productive per unit of labour input. The interactive model shows that the marginal effect of health on economic growth is declining as education levels increase, suggesting that health improvements in economies abundant in low skilled workers have a greater impact on growth than in economies with a highly educated workforce. Theory suggests that individuals who are healthier, live longer, and have a greater incentive to invest in education as the time horizon over which returns can be earned through higher skilled wage is extended. Using a system of equations, there is empirical support for the incentive effect of health on economic growth through its positive influence on education. Once the indirect effect of health is controlled for the direct effect of health is no longer significant. According to these findings, health policies that promote schooling attendance would have a beneficial affect on economic development. JEL Classification: I10,J10,O12 Keywords: Mortality risk, Education, Fertility, Economic Growth * Address for correspondence: School of Economics, College of Business and Economics, HW Arndt Build- ing 25a, Australian National University, Canberra ACT 0200, AUSTRALIA, fax: +61 2 612 55124, email: Jocelyn.Finlay@anu.edu.au † I am very grateful to the collegial support of members of the University of Otago Department of Eco- nomics, especially that of P.Dorian Owen and also Stephan Knowles and David Fielding and the productive work environment they offered. Thanks to Jane Golley and Alberto Posso, and to Steve Dowrick and Bob Breunig for their valuable comments. 1