LONGER LIFE YIELDS MORE INVESTMENT
June 22, 2005
Health is an integral component of human capital that enhances economic performance and productivity for the individual and the nation as a whole. Consequently, a healthier population yields more investment from abroad, according to the National Bureau of Economic Research.
The authors analyzed data from 74 countries, industrial and developing, between 1980 and 2000. They found that good population health -- measured by average life expectancy -- attracts more foreign direct investment (FDI):
- Life expectancy ranks second only to gross domestic product (GDP) per capita in its level of correlation with the inflow of gross FDI.
- One additional year of life expectancy increases FDI inflows by about 7 percent.
- In poor countries, a one-year higher life expectancy results in a 9 percent increase in gross FDI flows.
Similarly, disease can scare off FDI. For example:
- With the outbreak of SARS in China, FDI inflows declined by $2.7 billion into mainland China.
- During the same period, FDI in Hong Kong declined by 62 percent for one quarter.
The authors fear the lengthier epidemics, such as AIDS or malaria, could have severe, long-term effects on FDI. This would severely stunt the growth of Africa.
Source: David R. Francis, "Better Health Increases Foreign Direct Investment," NBER Digest, February 2005; based upon: Marcella Alsan, David Bloom, and David Canning, "The Effect of Population Health on Foreign Direct Investment," National Bureau of Economic Research, Working Paper No. 10596, June 2004.
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