Health and Income: A Dynamic Panel Data Model

A panel data approach has been used to find the effect of life expectancy on GDP per capita for 182 countries over 1960-2015. Panel data models are considered and compared to their estimates. Accounting for country fixed effects and dynamics in GDP per capita, our models document a significantly positive and robust effect of life expectancy on GDP per capita. The dynamic fixed effects model provides that GDP per capita increases by 3.5% with a 1% rise in life expectancy: On average around a 20-year rise in life expectancy provides about $10,913 more mean GDP per capita which is large in magnitude. Results remain very similar when using the instrumental variable model. Our investigation suggests that an improvement in life expectancy increases GDP per capita by reducing fertility and increasing saving