NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Increased Life Expectancies Imply Reduced Inter-country Inequality

"Between 1965 and 1995 poorer countries gained more in terms of longevity than richer countries did. Thus, the change in inequality in income per capita actually underestimates the degree of convergence in welfare across countries."

Although GDP per capita is the common measure for a nation's quality of life, material gain is only one of many aspects of life that determine economic well being. Economic welfare also depends on lifespan: the number of years over which income is enjoyed.

In The Quantity and Quality of Life and the Evolution of World Inequality (NBER Working Paper No. 9765), co-authors Gary Becker, Tomas Phillipson, and Rodrigo Soares compare both income and survival rates of individuals in some 49 developed and developing countries between 1965 and 1995. The researchers assign monetary values to gains in longevity and then use these values, together with traditional per capita income data, to assess the evolution of economic well being, both within the various countries and across countries. They use the estimated value of the longevity gains to compute "income equivalent compensation" measures: the 1995 income that would give individuals the same welfare level observed in that year but with mortality levels from 1965. They define a measure of "full" income growth that incorporates both income and life expectancy gains, and use this concept to refine the results from traditional studies of econom ic well being.

Their findings indicate that countries beginning with lower income levels tended to grow more in terms of the "full" income measure than countries beginning with higher average incomes. In the 30-year period studied, the per capita value of the longevity gains stated in terms of annual income is equal to 28 percent of the observed growth in per capita income for the United States, and more than 1.5 times the growth in per capita income for less-developed countries, such as El Salvador, Chile, and Venezuela. Overall, the authors estimate that the growth rate of the "full" income measure averages 140 percent for developed countries and 192 percent for developing countries.

This analysis suggests that between 1965 and 1995 poorer countries gained more in terms of longevity than richer countries did. Thus, the change in inequality in income per capita actually underestimates the degree of convergence in welfare across countries.

Examining data on the causes of death in the various countries over this period, the authors can also estimate the gain in life expectancy attributable to reductions in mortality by each specific cause of death. They find that deaths due to infectious, respiratory, digestive, and congenital diseases are the most important factors determining the convergence of life expectancy observed in the period. Mortality rates from these causes of death fell more rapidly in poor than in rich countries. By contrast, changes in mortality rates attributable to nervous system, senses organs, heart, and circulatory diseases worked against convergence, falling more rapidly in rich than in poor countries. These trends are consistent with the notion that poor countries absorbed technology and knowledge originating in rich countries, at relatively low cost (educational health programs and simple interventions), while developed countries took advantage of the latest and ever more sophisticated advances in medical technology (ne w technologies, costly change of habits, and expensive surgical interventions).

Becker, Phillipson, and Soares conclude that life expectancy gains in the three decades studied were a significant component of the gains in economic welfare in both developed and developing nations. The total lifetime value of these gains for a person born in 1995 corresponds to three times the value of U.S. GDP per capita, and more than 10 times the GDP per capita for countries like Chile or Egypt. These values would have the same welfare impact as a permanent increase in income per capita of more than 10 percent for the United States, and more than 50 percent for Chile and Egypt.

Assuming that medical advances are available to the entire population of each country, the approximately 3.8 million Americans born in 1995 had an aggregate welfare gain equal to $261 billion from the mortality reductions experienced by the United States between 1965 and 1995. The approximately 2.3 million Mexicans born in 1995 had an aggregate welfare gain equal to $133 billion from the mortality reductions experienced by Mexico during the same period. For 1995, these numbers correspond to 5 and 27 percent of the aggregate GDP for, respectively, the United States and Mexico.

-- Matt Nesvisky


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