Fridays Academy: Health, Poverty Reduction and Economic Growth (V)

Development Assistance for Health – DAH

The Commission on Macroeconomics and Health (2001) concluded that the level of health spending in low income countries was insufficient to address their health challenges and that a scaling up of financing was needed in tandem with government-wide reform programs targeted towards the functioning and delivery of health services.  Reform should aim to put in place stronger planning processes both within ministries of health and between them and the ministries of finance and planning.  A concerted effort at the national level can in turn be supported by stronger collaboration among development partners providing assistance to various sectors and/or programs.  The international community has an important role to play in supporting health in the development process. 

Trends in DAH

Approximately 90 percent of total development assistance for health (DAH) comes from bilateral and multilateral agencies; the European Community (EC); the Global Fund to Fight AIDS, malaria and tuberculosis (GFATM); and grants provided by the Bill and Melinda Gates Foundation (BMGF) (Michaud, 2003).   

Total DAH from the major sources identified above increased from US$6.4 billion on average between 1997–99 to US$8.1 billion in 2002, an increase of almost a quarter.  The majority of the funds from both the public and private sources went to the GFATM. 

Recent trends in development assistance for health (DAH) selected major sources of funds US$ thousands

 

Notes: (1) was not included in totals (pending update) to increase comparability of total DAH

Source: Michaud (2003)   

 

Reflecting its recognized importance, health ODA has recently performed better than total ODA.  Bilateral commitments for health ODA increased from US$2.6 billion on average in 1997–99 to US$2.9 billion in 2002.  The largest increase in commitments came from the U.S. who pledged US$1.5 billion in 2003, from US$920 million three years previous (1997-1999).  A further US$300 million from the bilateral donors was for multilateral agencies and the GFATM. 

 

The UN agencies increased funding from US$1.6 billion to US$2 billion over the study period, the increase being largely due to the extra-budgetary contributions of the WHO.  Contributions from the World Bank, after having increased over the 1990s, now stand at US$1 billion. Commitments from the BMGF amounted to US$0.6 billion in 2002.

 

Of the US$6.5 billion provided by the above donors, the largest share went to support country and regional activities (US$5.2 billion), with the remainder going to inter-regional and global activities (Michaud, 2003).  More than one third of the funds went to Africa and US$1.25 billion was allocated to HIV/AIDS, malaria and tuberculosis.  The U.S. was the largest donor for HIV/AIDS, committing US$790 million – more than double that of the next largest donor in 2002.  GFATM allocated over half (56%) of total commitments to HIV/AIDS with 27 percent going for malaria and 15 percent to tuberculosis (Michaud, 2003).  Thus, the largest increase in DAH was allocated towards fighting AIDS in Sub-Saharan Africa, (Exhibit below).   

 Top ten countries receiving most DAH from selected major sources (2002)

  Countries with a total population of less than 1 million were not includedSource: Michaud 2003

The conclusions from the study on development assistance for health undertaken by Michaud (2003) may be summarized as: 

• DAH maintained a steady level during the 1990s even when total ODA was falling;
• Allocation of DAH has been responsive to geographical needs, at least for HIV/AIDS, malaria and tuberculosis;
• The setting up of GFATM (as suggested initially by the CMH (2001)) has generated increased commitment from the developed world in fighting major health problems in developing countries;
• The allocation of funds increased by US$1.7 billion from 1997 to 2002 but continue to fall short of meeting real needs;
• Political commitment is at an unprecedented high, with, for example, the President of the U.S. having committed US$15 billion for 14 countries to fight AIDS over the next five years. (Michaud, 2002)

Source: World Bank Poverty and Growth Programyouth

IFC-FT Essay Competition

The International Finance Corporation of the World Bank Group (IFC) and the Financial Times (FT) have announced their second annual Essay Competition. This year’s theme is “Private Sector Development: Creating Markets, Transforming Lives.”

Awards of  20,000, 10,000 and 5,000 USD up for grabs, and a chance to have your ideas published and maybe put to work.

Deadline to apply is September 30.

Submission procedures

(Via PSD Blog)
Source: World Bank Poverty and Growth Program

Fridays Academy: Health, Poverty Reduction and Economic Growth (IV)

Life Expectancy

Source:   World Development Indicators

Despite the very real challenge from AIDS, which has undone earlier progress made in health in some regions (exhibit above) the challenges to improve health indicators further are not insurmountable. CMH note that the “epidemiological evidence conveys a crucial message: the vast majority of the excess disease burden is the result of a relatively small number of identifiable conditions, each with a set of existing health interventions that can dramatically improve health and reduce the deaths associated with these conditions”. 

While corruption, mismanagement and a weak public sector do hinder improvements in health, the basic factor is that the poor simply lack the financial resources to obtain coverage of essential interventions.  CMH (2001) estimated that the cost of these health interventions would amount to between US$30 and US$40 per person per year to cover essential interventions including those needed for AIDS.   Average health spending in least developed countries is approximately US$13 per person per year in total health expenditures of which budgetary outlays are US$7 (average health spending in high income countries is at least US$2000 per person per year).  More efficient and greater resource mobilization among poor countries will not bridge the gap in financing and donor finance is needed. CMH (2001) suggests a scaling up of health investments would require US$27 billion per year in donor grants by 2007. Currently US$6 billion is being provided. 
As noted in previous postings, the macroeconomic impact of rapidly scaling up aid flows may generate inflation, macroeconomic instability, increase the debt burden where the aid comes in the form of loans rather than grants, and short-term volatility in the exchange rate and interest rate.  In particular, where aid is used to purchase local goods and services, their costs may rise faster than their supply. This issue would affect the health sector where “local costs are typically 70-75 percent of total spending and where the number of skilled staff cannot be increased quickly” (WHO).  However, not increasing aid is not an option. Moreover, in an environment in which aid flows are predictable and persistent, where timing of disbursements matches national budget cycles and where the country has already initiated improvements in health and macroeconomic stability should make for fewer problems with a scaling up of aid. In addition, increased aid inflows may target other sectors—road construction and sanitation—that indirectly affect health and that have less potential for inflationary and macroeconomic instability. 

Source: World Bank Poverty and Growth Program

Migration and Development Conference, May 23-24, Washington DC

Organized by the World Bank’s Migration Group, the OECD Development Centre and the Migration Policy Institute.

This two-day conference will provide the space for a dialogue between the external research and policy community to identify critical areas for interventions that enhance the development impact of migration. It will make an explicit effort in identifying policy areas for increased attention and action from international policy institutions.

More information.

Registration form.

For a less academic analysis of migration, see the recent story in the New York Times Magazine (for members), which looks at this issue from a more personal point of view.
Source: World Bank Poverty and Growth Program

Fridays Academy: Health, Poverty Reduction and Economic Growth (III)

Evidence from cross-country growth regressions suggests that improvements in health make a large contribution to economic growth, and the initial health of a population has been identified as one of the most robust factors contributing to economic growth as economies adjust over time to their steady-state output level when growth then begins to slow.  Bloom, Canning and Sevilla (2004) found that one extra year of life expectancy raised steady-state GDP per capita by about 4 percent (Bloom, Canning and Jamison, 2004). Each 10 percent improvement in life expectancy at birth is associated with a rise in economic growth of between 0.3 and 0.4 percentage points per year, all other growth factors held constant. This means that the difference in annual growth between a rich country, where life expectancy at birth is around 77 years on average, and a typical poor country, 49 years on average, is about 1.6 percentage points a year that, over time, adds to a substantial effect.  Thus, health status explains part of the difference in growth rates among rich and poor countries, even after controlling for other macroeconomic variables.  Furthermore, Bloom and Sachs (1998) showed that more than half of the growth disparity between Africa and East Asia was statistically explained by disease burden, demography and geography.

A virtuous cycle characterizes the health-growth relationship. Improvements in health increase economic growth that in turn facilitate further health improvements.  This pattern of cumulative causation increases for a time before diminishing returns to health set in as demographics take over and the population ages.   This non-linear relationship was also identified by Preston in 1975.
Preston (1975), in examining the cross-country relationship between average income and increases in life expectancy, found that increases in average income among poor countries are strongly associated with increases in life expectancy. As income per head rises, the relationship flattens out. Thus for rich countries, the relationship is weak or absent.  If this nonlinear relationship also holds within countries, then we would expect that the more equal a country is in terms of income per head, the higher average life-expectancy and transfers from rich to poor should increase overall average life expectancy. Deaton (2001) finds that the effect of income on reducing the probability of death at the bottom of the income distribution is much greater than its effect at the top of the distribution. Thus, a redistribution of income, even without an increase in average income should bring about an improvement in average health.  Similarly, among poor countries, a redistribution of income to poorer countries within the group should improve infant and child mortality near the bottom of the distribution.  However, as noted by Deaton (2001), average  income matters more than income inequality  for population health in poor countries.

However, focusing solely on GDP per capita as a measure of a country’s economic performance misses the fact that health indicators vary widely for the same income level.  A more accurate measure is the concept of “full income” “that captures the value of changes in life expectancy by including them in a measure of economic welfare” (Bloom, Canning and Jamison, 2005, p.12).  A proxy for full income is the ‘value of a statistical life’, i.e. the willingness to pay to avoid risks and is defined as the observed amount required accepting a risk divided by the level of the risk.  Bloom, Canning and Jamison give the example of a worker who demands and gets US$500 extra a year to accept a more risky but similar job where the increase in the mortality rate is 1 in 10,000. Thus, the VSL is (US$500/1/10,000) = US$5,000,000.  Based on research by Viscusi and Aldy (2003), a country’s range of values for VSL lies between 100 to 200 times its GDP per capita. VSLs for richer countries are more likely to lie nearer to 200 given that the willingness to pay to avoid risks increases with income.

Bloom, Canning and Jamison (2005) estimate full income for Africa in an attempt to measure the impact of AIDS on full income.  Even though life expectancy in sub-Saharan Africa has declined to 46 years and almost 21 percent of deaths were directly attributable to AIDS (numbers are for 2001), little impact was found on GDP per capita.  This does not preclude GDP per capita decreasing in the long-run as education and savings rates may fall because of high mortality rates. Two studies undertaken respectively for the WHO and the IMF both concluded “that the AIDS epidemic in the 1990s had far more adverse economic consequences than its effects on per capita GDP would suggest” (Bloom, Canning and Jameison, 2004, p. 13).  Using the change in GDP per capita and the value of changes in mortality rates  i.e. by calculating the impact of AIDS on mortality rates  as a measure of full income, the authors suggest that income declined by 1.7 percent a year from 1990 to 2000, ‘far higher than existing estimates of the effect of AIDS on GDP’ (Bloom, Canning and Jamison, 2004, p. 13).  Furthermore, improvements in adult health prior to 1990 suggested larger economic benefits relative to changes in GDP per capita. The exhibit below shows that when comparing full income with GDP per head, Kenya’s economic performance before 1990 was significantly underestimated and overestimated since then.
Comparison of Full-Income and GDP per head for Kenya, 1960-2000

                Source: Bloom, Canning and Jamison, 2004  
Source: World Bank Poverty and Growth Program

Fridays Academy: Health, Poverty Reduction and Economic Growth (II)

The unacceptably high mortality rates in the least developed countries can be improved by the control of communicable diseases and enhancing maternal and child health. HIV/AIDS, malaria, tuberculosis (TB), childhood infectious diseases, maternal and prenatal conditions, micronutrient deficiencies and tobacco-related illnesses represent the main causes of (avoidable) deaths in low-income countries (CMH, 2001).  Widespread disease also stunts the exploitation of arable land, migration and trade. Bad health stymies job productivity and an individual’s ability to learn and to grow intellectually, physically and emotionally. Through all these channels, ill health pushes the poor deeper into poverty.  If disease was controlled so that individuals could reap longer and healthier lives, the pressure to have many children would abate and families could invest more in the health of each child. These improvements in health would in turn translate into higher incomes, higher economic growth and reduced (and more sustainable) population growth.
A healthy individual is more likely to be more productive than an unhealthy one. Better health increases per capita income through at least three channels. These are:

•  
  • altering decisions about spending and saving over an individual’s life-cycle;
  • encouraging foreign direct investment; and
  • increasing the incentives for investing in education.

An individual is less likely to save for retirement when mortality rates are high. Falling mortality rates in many developing countries has opened up new incentives to save that impact dramatically, at least before populations begin to age, on national saving rates. The impetus from the national savings rates boosts investment rates and increases per capita income.  Foreign investors are more likely to shun environments in which the labor force suffers from a high disease burden. Whole industries in agriculture, mining, manufacturing and tourism suffer from a lack of investment when disease is prevalent. Moreover, infrastructure projects suffer from a lack of investment also in high disease environments. Furthermore, endemic disease, such as river blindness, prevents individuals from exploiting land and other natural resources. Reduced mortality rates also make investment in education more appealing, as healthier children have higher rates of school attendance and higher cognitive abilities.  A number of studies have shown the positive effect of health and nutrition on school attendance and cognitive ability (Balasz et al. (1986), Pollitt (1997, 2001), Bhargava (1997), Kremer and Miguel (1999)).      
 

Exhibit below examines the vicious cycle that can be set in motion when bad health leads to further impoverishment and further ill-health. Poor health reduces GDP per capita by reducing labor productivity from reduced investment in physical capital, reduced access to natural resources and the global economy and reduced schooling and impaired cognitive capacity.  GDP per capita is also lowered by a reduced labor force stemming from high mortality due to adult illness and malnutrition and early retirement.  The higher dependency ratio stemming from the reduced labor force and higher fertility and child mortality directly feeds into lower GDP per capita.  The HIV/AIDS epidemic in Sub-Saharan Africa has already begun to impact on higher levels of adult mortality.  The effect of HIV/AIDS on GDP per capita could eventually follow the pattern described by the exhibit below with consequent adverse effects for investment, education, and saving for retirement. 

Health’s Links to GDP

              Source:     Bloom, Canning and Jamison, 2005

Source: World Bank Poverty and Growth Program

Barack Obama will double US Aid

In a speech to the Chicago Council on Global Affairs, Barack Obama pledged to double US aid by 2012, if elected President.

For the last twenty years, U.S. foreign aid funding has done little more than keep pace with inflation.  Doubling our foreign assistance spending by 2012 will help meet the challenge laid out by Tony Blair at the 2005 G-8 conference at Gleneagles, and it will help push the rest of the developed world to invest in security and opportunity.  As we have seen recently with large increases in funding for our AIDS programs, we have the capacity to make sure this funding makes a real difference.

John Edwards also made his Global Poverty Proposal recently.

Hillary?

(Via Owen, Steve Radelet also writes about it at the CGD)
Source: World Bank Poverty and Growth Program

Dani Rodrik’s blog

Dani Rodrik has entered the blogosphere with a promise of unconventional thoughts on economic development and globalization.

That’s great news. Welcome!

(Via Trade Diversion)
Source: World Bank Poverty and Growth Program

Migration and remittances: leaving in order to live

We have blogged about migrant remittances in the past, from an economic point of view.

The New York Times magazine includes this week an excellent article on remittances that looks at the personal stories behind migration and at its costs and benefits. Jason DeParle’s article focuses on the Philippines, a country with 10 percent of its population living abroad and where remittances make up 14 percent of its GDP.

With about one Filipino worker in seven abroad at any given time, migration is to the Philippines what cars once were to Detroit: its civil religion. A million Overseas Filipino Workers — O.F.W.’s — left last year, enough to fill six 747s a day. Nearly half the country’s 10-to-12-year-olds say they have thought about whether to go. Television novellas plumb the migrants’ loneliness. Politicians court their votes. Real estate salesmen bury them in condominium brochures. Drive by the Central Bank during the holiday season, and you will find a high-rise graph of the year’s remittances strung up in Christmas lights.

Across the archipelago, stories of rags to riches compete with stories of rags to rags. New malls define the landscape; so do left-behind kids. Gain and loss are so thoroughly joined that the logo of the migrant welfare agency shows the sun doing battle with the rain. Local idiom stresses the uncertainty of the migrant’s lot. An O.F.W. does not say he is off to make his fortune. He says, “I am going to try my luck.

More information on remittances at the World Bank website.
Source: World Bank Poverty and Growth Program

Satellite monitoring to protect forests

By Bilal Hassan
THE Punjab government has decided to launch a green Punjab programme through public-private joint venture to safeguard and promote forestry in the province. It is a welcome move for environmentalists and for sustainability of agriculture. The provincial government intend to plant 20 million trees on 100,000 acres in the coming three years.To protect forests, penalty on tree theft has been increased five times of tree value or one year imprisonment. It means if the value of tree is Rs1,000, the penalty would be Rs5,000.

Under the Rs4.5 billion Green Punjab Programme, satellite monitoring would be introduced to protect forests. The objective of the programme is to bring 25 per cent area of the province under forests. New species of plants would be introduced with the cooperation of Spain and France. To add to this, plantation of teak tress would also be carried out.

In this context, it is essential to visualise different types, extent, importance, problems and management of various forests in the country.

Sustainability of agriculture is linked with forests since trees control soil erosion, regulate water supply, keep climate moderate, stabilise canal embankments and prolong the lives of dams and reservoirs.

Besides these benefits, forests are a valuable source of various products and by-products including timber, charcoal, firewood, pulp, tannin, lignin, cellulose and wax. Wood and timber constitute raw material for wood-related industries. Wood is also used in manufacturing of agricultural implements. Livelihood of hundreds of thousands of people is linked with such industries.

Our country is a land of great diversity but short of forests.Less than five per cent of its total area is under forests, which is very low as compared with other Asian countries. In India, Japan, Sri-Lanka, Philippines, Korea, Bhutan and Brunei, natural forest area ranges from 24.2 to 90.4 per cent of the total land mass.

Our total forest area is around four million hectares. Province-wise forest areas are about 0.51 million hectares, 1.33 million hectares, 0.84 million hectares and 1.36 million hectares in Punjab, NWFP, Sindh and Balochistan, respectively. The state forests contribute only 14 per cent of timber and 10 per cent of fuel wood whereas farmland contributes 46 per cent of timber and 90 per cent of fuel wood requirements. Forest’s share in the gross domestic product (GDP) is extremely low compared to other sub-sectors of agriculture.

Various important forests include moist and dry temperate coniferous, scrub, tropical thorn, riverian, juniper, mangrove, irrigated and farm forests scattered from northern mountainous to southern delta regions. These forests differ with respect to occurrence, environmental conditions, composition, management and economic importance.

Moist temperate forests: These forests are located in Azad Jammu and Kashmir, Murree, parts of districts of Abottabad, Swat, Mansehra, including some tribal areas of Malakand and Hazara.

Important timber vegetation comprises deodar, fir, partal and kail. These forests yield precious timber used for multiple purposes. Other type of vegetation includes oak, popular and horse chestnut as broad-leaved tress.

The management of these forests is carried out for the protection of Mangla and Tarbela watersheds and to regulate clean supply of water to rivers. Important problems are illegal and excessive cutting of trees.

Dry temperate forests: Dry temperate forests are found in the northern Areas of Diamir, Chitral and Dir, tribal areas of Waziristan and northern Balochistan of Loralai and Zhob.

Important trees found in these forests are Chilgoza, pine, pencil juniper and deodar. Pencil juniper is the most important quality timber that is used in making pencils. Excessive cutting by local people and poor germination ability of seeds are the problems confronting these forests.

The scrub forests: These forests are located in the Pothwar region, the foothills of Murree and the NWFP hills. Vegetation is open, bushy and branchy including Kahu and Phulai. The small timber obtained from Kahu and Phulai is used in manufacturing of handicrafts, handles of hand tools and rural cots. Trees protect the watersheds of Tarbela and Mangla dams. Excessive cutting of trees by local people has inflicted a lot of damage to these forests

Tropical thorn forests: These forests survive under drought-like conditions. Technically, trees are called Xerophytes like karir, sarkand, van, kikar, jand and farash. Deep and extensive roots, small and a few leaves, a few number of stomata on and under the leaves, short life-span, shedding of leaves during dry season and thick bark are the characteristics features that help the plant to survive under drought conditions. Though the forests offer lush green sites for grazing of livestock and protection of wildlife they are vanishing due to rapid industrialisation, urbanisation, and road construction and over cutting of trees.

Irrigated forests: Irrigated forests are most important. Primarily, the irrigated forests were managed for provision of wood for making coal but after discovery of coal, the objective changed to producing quality timber for making furniture and sports goods. But shortage of water for irrigation, slow growth species, loss of wood by pilferage, diseases, insects, pests and weeds are factors exercising adverse effects on the productivity of these forests. Farm forestry has got much attention of the forests due synergistic effects of trees on farm crops.

Riverian forests: These forests are located on both banks of the Indus—-eastern and western banks. These are rapidly vanishing in Sindh due to significant reduction in the annual discharge of Indus in the lower Indus region. These forests are called riverian forests and comprise vegetation like kikar, jand, farash and Bahn. The trees of Punjab riverian forests include shisham and mulberry which are also exposed to illegal cutting. Medium size timber wood obtained from the forests is used in furniture, building material and sports goods. These trees strengthen rivers and canal embankments.

Mangrove forests: Located on the Indus delta originally consisted of highly salt tolerant species such as Avicennia marina, Avicennia officinalis, ceriops tagal and Aegiceras corniculatum but large number of these species failed to survive due to changing of deltaic conditions over the years. Only Avicennia marina is the surviving species in the delta region.

These forests are good feeding, breeding and nursery grounds for prawns, shrimps, fish etc. Equally these are good habitat for snakes, birds and mammals. The trees have the importance of arresting erosion, storm damage and wave action by acting as buffers and catching alluvial materials.

Over exploitation, pollution and changes in water quality, excessive cutting for fuel wood and fodder, solid industrial and domestic wastes and oil spills have resulted in reduction of area under mangrove forests. Area of these forests has reduced from 263,000 hectare in 1978 to 158,500 hectare in 1990. There is a need of a comprehensive programme to educate local people about the value of mangroves to prevent cutting for fuel.

Management of these forests requires planting tree material containing characteristics like extensive root system, broad genetic base and ability of withstanding harsh climate, browsing, trampling and uprooting in the forests to ensure continuous supply of timber. To boost forest productivity, it is necessary to undertake certain cultural operations such as weeding, staking, pruning, thinning etc from time to time. Irrigation along with occasional fertilisation is crucial to get desired results. Lastly, removal of old trees and plantation of new sapling is pre-requisite to maintain healthy forest crop.

Source: DAWN Business and Economic Review