The roles of preventive and curative health care in economic development

Both the preventive and curative healthcare provisions accumulate agents' health stock and stimulate economies' productivities. However, with limited medical resources, increases in preventive health expenditure crowd out curative expenditure, and vice versa, which in turn impairs the population's health and deters economic growth. This research aims to provide a empirically rigorous test on the hypothesis that optimally allocating health expenditure between prevention and cures stimulates economic growth within different countries, especially developed countries, and investigates whether health services are luxury goods on the path of economic development.

Based on OECD country experiences, this present study uses the system generalized method of moments (GMM) estimation method to examine the roles of preventive and curative healthcare services over the path of economic development and proves that preventive and curative health spending have non-linear effects on economic performance.

For growth maximization, the optimal share of preventive health expenditure to GDP is 0.44% with per capita GDP at US$40,465; the real share is 0.25% with per capita GDP at US$35,230. The optimal share of curative health expenditure to GDP is 10.96% with per capita GDP at US$41,816; the real share is 8.26% with per capita GDP at US$35,230. Accordingly, the estimated optimal provision of health services are currently underprovided. This research further estimates the effects of income on demand for care and shows that the income elasticities of preventive and curative health care are greater than unity. Health services are luxury goods.

Economies with higher incomes demand such services more than those with lower incomes. The large positive effects of income on preventive care use exist.