David Canning

Longevity and Life-cycle Savings

We add health and longevity to a standard model of life cycle saving and show that, under plausible assumptions, increases in longevity lead to higher savings rates at every age, even when retirement is endogenous. In a stable population these higher savings rates are offset by increased old age dependency, but during the disequilibrium phase, when longevity is rising, the effect on aggregate savings rates can be substantial. Our results explain the boom in savings in East Asia during 1950-90 as a combination of rising life expectancy and falling youth dependency, though they predict that savings in the region will return to more normal levels as populations age. We also find that falling life expectancies in Africa are associated with declining savings rates.

INFRASTRUCTURE, LONG-RUN ECONOMIC GROWTH AND CAUSALITY TESTS FOR COINTEGRATED PANELS

We investigate the consequences of various types of infrastructure provision in a panel of countries from 1950 to 1992. We develop new tests which enable us to isolate the sign and direction of long-run effects in a manner that is robust to the presence of unknown heterogeneous short-run causal relationships. We show that while infrastructure does tend to cause long-run economic growth, there is substantial variation across countries. We also provide evidence that each infrastructure type is provided at close to the growth-maximizing level on average globally, but is under-supplied in some countries and over-supplied in others.

Geography and Poverty Traps

We test the view that the large differences in income levels we see across the world are due to differences in the intrinsic geography of each country against the alternative view that there are poverty traps. We reject simple geographic determinism in favor of a poverty trap model with high- and low-level equilibria. The high-level equilibrium state is found to be the same for all countries while income in the low-level equilibrium, and the probability of being in the high-level equilibrium, are greater in cool, coastal countries with high, year-round, rainfall.

Urbanization and the Wealth of Nations

The proportion of a countrys population living in urban areas is highly correlated with its level of income. Urban areas offer economies of scale and richer market structures, and there is strong evidence that workers in urban areas are individually more productive, and earn more, than rural workers. However, rapid urbanization is also associated with crowding, environmental degradation, and other impediments to productivity. Overall, we find no evidence that the level of urbanization affects the rate of economic growth. Our findings weaken the rationale for either encouraging or discouraging urbanization as part of a strategy for economic growth.

The Social Rate of Return on Infrastructure Investments

The authors estimate social rates of return to electricity-generating capacity and paved roads, relative to the return on general capital, by examining the effect on aggregate output and comparing that effect with the costs of construction. They find that both types of infrastructure capital are highly complementary with other physical capital and human capital, but have rapidly diminishing returns if increased in isolation. The complementarities on the one hand, and diminishing returns on the other, point to the existence of an optimal mix of capital inputs, making it very easy for a country to have too much - or too little - infrastructure. For policy purposes, the authors compare the rate of return for investing in infrastructure with the estimated rate of return to capital. The strong complementarity between physical and human capital, and the lower prices of investment goods in industrial economies, means that the rate of return to capital as a whole is just as high in rich countries as in the poorest countries but is highest in the middle-income (per capita) countries. In most countries the rates of return to both electricity-generating capacity and paved roads are on a par with, or lower than, rates of return on other forms of capital. But in a few countries there is evidence of acute shortages of electricity-generating capacity and paved roads and, therefore, excess returns to infrastructure investment. Excess returns are evidence of suboptimal investment that, in the case of paved roads, appears to follow a period of sustained economic growth during which road-building stocks have lagged behind investments in other types of capital. This effect is accentuated by the fact that the relative costs of road construction are lower in middle-income countries than in poorer and richer countries. As a rule, a tendency to infrastructure shortages - signaled by higher social rates of return to paved roads or electricity-generating capacity than to other forms of capital - is symptomatic of certain income classes of developing countries: electricity capacity in the poorest, paved roads in the middle-income group. To the extent that such high rates of return are not detected by microeconomic cost-benefit analysis, they suggest macroeconomic externalities associated with infrastructure.

Scaling the volatility of GDP growth rates

Abstract The distribution of shocks to GDP growth rates is found to be exponential rather than normal. Their standard deviation scales with GDPβ where β=−0.15±0.03. These macroeconomic results place restrictions on the microeconomic structure of interactions between agents.

The economic consequences of reproductive health and family planning

We consider the evidence for the effect of access to reproductive health services on the achievement of Millennium Development Goals 1, 2, and 3, which aim to eradicate extreme poverty and hunger, achieve universal primary education, and promote gender equality and empower women. At the household level, controlled trials in Matlab, Bangladesh, and Navrongo, Ghana, have shown that increasing access to family planning services reduces fertility and improves birth spacing. In the Matlab study, findings from long-term follow-up showed that womens earnings, assets, and body-mass indexes, and childrens schooling and body-mass indexes, substantially improved in areas with improved access to family planning services compared with outcomes in control areas. At the macroeconomic level, reductions in fertility enhance economic growth as a result of reduced youth dependency and an increased number of women participating in paid labour.

Infrastructure's Contribution to Aggregate Output

Using panel data for a cross-section of countries, the author estimates an aggregate production function that includes infrastructure capital. He finds that: 1) The productivity of physical and human capital is close to the levels suggested by microeconomic evidence on their private returns. 2) Electricity generating capacity and transportation networks have roughly the same marginal productivity as capital as a whole. 3) Telephone networks appear to show higher marginal productivity than other types of capital. Panel data co-integration methods used in estimation take account of the non-stationary nature of the data, are robust to reverse causation, and allow for different levels of productivity and different short-run business-cycle and multiplier relationships across countries.

The effect of population health on foreign direct investment inflows to low- and middle-income countries

Summary This paper investigates the effect of population health on gross inflows of foreign direct investment (FDI). We conduct a panel data analysis of 74 industrialized and developing countries over 1980–2000. Our main finding is that gross inflows of FDI are strongly and positively influenced by population health in low- and middle-income countries. Our estimates suggest that raising life expectancy by one year increases gross FDI inflows by 9%, after controlling for other relevant variables. These findings are consistent with the view that health is an integral component of human capital for developing countries.

The Health and Poverty of Nations: From theory to practice

Health is both a direct component of human well-being and a form of human capital that increases an individuals capabilities. We argue that these two views are complementary and that both can be used to justify increased investment in health in developing countries. In particular, we argue that the large effect improved health has on household incomes and economic growth makes it an important tool for poverty reduction. We survey the literature on the link between improvements in health and improved economic growth at the national level and also the link between improvements in health and improved productivity and wages at the household level. The theoretical arguments and related empirical evidence demonstrate a large effect of health improvements on productivity, household incomes, and economic growth. Given the large payoffs to health that exist in developing countries, we assess how health can be improved. We also argue that the income gains that result from health interventions can potentially feed back into better health in a process of cumulative causality, suggesting a fundamentally new rationale for greater spending on health in developing countries. In addition, we contend that, for health sector policies to be successful, there needs to be deep institutional change at the international, national, and local levels that puts greater emphasis on the health sector, and in particular that focuses on the health needs the poor themselves identify as important. The HIV/ AIDS epidemic represents the major challenge for health in many developing countries today. We use this as a test case showing how successful health interventions require not just increased spending, but also a profound commitment to change by all sectors of society.