Hygiene and Education Indexes and Economic Growth of Iran ...

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Human capital topic introduced seriously among economic development theorists ... Romer and Weil (1992) developed the practical economic growth model.
American International Journal of Research in Humanities, Arts and Social Sciences

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ISSN (Print): 2328-3734, ISSN (Online): 2328-3696, ISSN (CD-ROM): 2328-3688 AIJRHASS is a refereed, indexed, peer-reviewed, multidisciplinary and open access journal published by International Association of Scientific Innovation and Research (IASIR), USA (An Association Unifying the Sciences, Engineering, and Applied Research)

Hygiene and Education Indexes and Economic Growth of Iran Provinces Majid Maddah (Department of economic, Faculty of Economic and Management, Semnan University, Iran) Elham Gholampour (M.A. of Economic Sciences, Semnan University, Iran) Negin Bazarcheh Shabestari (Graduate student of Economics, Semnan University, .Iran)

Abstract: This paper investigates the effect of hygiene and education indexes on economic growth of Iran provinces based on the generalized Solow’s growth model and panel data pattern during the time span (2000-2007). The results from model estimation confirm a positive and meaningful effect of hygiene and education on provinces’ real GDP. The sum of hygiene and education indexes coefficients is 0.26 and 0.14 that show hygiene impact on economic growth is more than education. That means that the economic growth elasticity relative to hygiene is more than the economic growth elasticity for education. Keywords: Hygiene (Health), Education, Human capital, Economic growth, Panel data JEL classification: C23, O47, O15, I21, I12 I. Introduction Education and hygiene (i.e. health) are the main resources of human capital. Improving education and health level is one of the government goals in development programs. These goals, which can be achieved by increase in government expenditures on hygiene and education sectors, improve life standards and society’s productivity level and lead to higher economic growth. This paper investigates the relationship among hygiene and education indexes and economic growth in Iran provinces using panel data analysis. The research tries to answer this question: Do education and health factors influence economic growth level? Which human capital components (hygiene or education) have more effectiveness on the economic growth? Answers this question, introduce policies that can lead to more economic growth in Iranian economy. II. A Brief Review of Related Literature Human capital topic introduced seriously among economic development theorists since 1960s. The human capital category, which initially was proposed by balanced growth theorists such as Nurkse (1953), gradually was followed by other economists. Solow (1956) firstly, entered human capital into production function and measured education share in economic growth through it. Through studying the GDP growth of U.S, Schultz noticed that in addition to production resources, material capital and quantitative labour, another factor had also played an important role in the economic growth. Schultz studies (1961) showed that this factor is labour quality, which was called ‘human capital’. He assumed the allocated capital amount to education as the indicator variable of human capital or labour quality and put it in the production function. In common research, Mankiw, Romer and Weil (1992) developed the practical economic growth model. They first surveyed Solow’s model and estimated it for different countries, then added human capital as one production factor and studied the effect of human capital indexes on the economic growth of different countries. In some researches have been investigated the effect of human capital on economic growth. Rivera and Currais (1999) studied the relationship between hygienic expenditures and GDP in 24 OECD countries and found there is a significant and positive relationship between hygienic expenditures and economic growth. Based on Mankiw, Romer and Weil’s completed model, Li and Huang (2009) concluded hygiene and education variables have a considerable positive impact on economic growth of China provinces, although the effect of education is stronger than hygiene. The interaction relationship between education and hygiene does not decrease their impact on growth. In another study, Beraldo, Montolio and Turati (2009) found education and health expenditures have a significant and positive impact on economic growth using panel data in 19 OECD countries between 1971 and 1998. Other studies, for example, Bhargava et al. (2001) have confirmed the effect of life expectancy at birth index on GDP growth; Cole et al. (2006) confirmed the like between health and AIJRHASS 13- 126; © 2013, AIJRHASS All Rights Reserved

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economic growth through the relationship among health, total factor productivity and economic growth. Baldacci et al. (2008) used panel data from 118 developing countries for the period (1971– 2000) and explored that both education and health spending have a positive and significant impact on economic growth. In contrast, Bils and Klenow (2000), Bosworth and Collins (2003) couldn’t confirm a positive and significant link between human capital indexes and economic growth. III. Model Specification and Data To survey and analyse of education and health impact on the economic growth throughout provinces, we initially consider a generalized Solow’s growth model based on the Cobb-Douglas production function and then enter human capital variables including education and hygiene. This function, due to its flexibility and easiness is regularly used in empirical studies. This model based on panel data pattern framework, is introduced as below:

Yit  K  it E  it H  it ( Ait Lit )1  

(1)

Where i: denotes sectional units (provinces), t: time, Y: real GDP, K: physical capital, L: labour, E: education, H: hygiene, A: technology level. In Cobb-Douglas function is assumed that the return to scale to be constant and growth rates of K and L are fixed and equal n and g . Based on model (1) and considering the goals of research and also restrictions of research in collecting statistic and information, variables are introduced as below: Y: Real gross domestic product (RGDP) which is the gross domestic product of each province at current prices divided by the price index of each province in the same year at constant price of 2004. K: Real physical capital of province which is defined as the ratio of constructional cost of each province at the current price divided by the price index of each province in the same year at constant price of 2004. L: Labour, which is the economically active population above 10 years old. E: Number of teachers per each 10000 students, which is number of teachers from all educational courses (exceptional, elementary, junior and senior high school (the old and new system) and pre-university) working in education and training ministry divided per 10000 students and number of graduates from high school per 10000 population above 10 years. H: Number of doctors per 10000 population, number of hospital beds per 10000 population and number of therapy institutions per 10000 population. Table (2) shows descriptive statistics used in the research. Table1. Descriptive statistical health and education indexes among the provinces of Iran (2000-2007) Mean

Max

Min

Std.Dev

Number of teachers per 10000 students

17.81

589.89

249.33

72.71

Number of graduates from high school per 10000 population above 10 years.

151.92

1357.52

67.04

101.91

Number of doctors per 10000 population

3.91

10.64

1.51

1.41

Number of hospital beds per 10000 population

16.61

46.45

8.61

5.77

Number of therapy institutions per 10000 population

0.11

0.23

0.05

0.03

Observations

224

224

224

224

IV. Model Estimation and Empirical Results In order to empirical test and investigation of the relationship among hygiene and education indexes and economic growth, we have estimated model (1) using 28 provinces of Iran data for the period (2000-2007) (i.e. panel data method). Throughout this study, all variables are natural logarithm. In order to estimation model using panel data method, we have applied different tests related to determine the existence of intercept and its kind variance heteroskedasticity. The results achieved from F-test for all models illustrate that the intercept equality null hypothesis for all sections is rejected and the alternative hypothesis is confirmed. Thus for each province being studied, a separate intercept must be considered. Also the result of Husman test for all models showed that constant effects for intercept are confirmed. In the other hand, Lagrange multiplier test confirmed problem of variance heteroskedasticity in model that for avoiding it, we used GLS method instead of OLS in model estimation. Along the research goals, seven models were estimated using panel data method. Models estimation has been done based on model (1) and variables that were introduced in sector (3). The results from 2

models estimation are summarised in table (2). The amount of R for all estimated models is high, which expresses that model enjoys high explanatory power and results could is cited. Among estimation of different models, the seventh model is the best model by reason of fitted indexes. In this model number of therapy institutions per each 10000 population index accompanied by the number of hospital beds per each 10000

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population index, number of teachers per 10000 students and number of graduates from high school per each 10000 population above 10 years old, is used in model estimation. Based on the results from estimation of model (7), the between two hygiene indexes, number of therapy institutions per each 10000 population index and the between two education indexes, number of teachers per each 10000 students index, have more effectiveness on the economic growth. Therefore, in order to improve economic growth, economic policies must concentrate on these indexes. In the final model, the sum of hygiene and education coefficients is 0.26 and 0.14 that show hygiene impact on the economic growth is more than education. That means that the economic growth elasticity relative to hygiene is more than the economic growth elasticity for education. Therefore, in order to improve economic growth policymakers should have more concentration on hygiene indexes. An improvement in hygienic indexes leads to more quality of labour and more productivity and occasions more economic growth. 2

High R in the final model shows that model has high and appropriate explanatory power and 99.77 percent of the economic growth changes are explained by independent variables changes. In all the models, physical capital and labour affect the economic growth positively and meaningfully, as expected, and labour coefficient is higher than physical capital in all estimations. Table 2. Models of growth estimation results Model (1)

Model (2)

-10.34 (-13.5)

-9.25 (-10.9)

Intercept

Number of doctors per 10000 population Number of hospital beds per 10000 population

0.003 (0.23)

Model (3) -9.63 (-13.0)

Model (4)

Model (5)

Model (6)

Model (7)

-.921 (-12.4)

-10.04

-7.95

-7.91 (-8.4)

(-13)

(-7.7)

-

-

-

-

-

-

0.005 (0.33) 0.06 (4.09)

-

-

-

-

0.14 (2.5)

0.11 (2.21)

-

0.06 (3.87)

-

-

0.26 (4.74)

-

-

-

0.17 (3.65)

Number of graduates from high school per 10000 population above 10 years.

-

-

-

-

0.01 (1.69)

0.02 (2.13)

0.03 (2.35)

Capital

0.07 (6.1)

0.1 (6.9)

0.06

0.06 (6.15)

0.08

0.1 (7.31)

(5.25)

(7.15)

0.09 (6.75)

Labour

2.01 (29.6)

1.88 (22.8)

1.75 (18.7)

R2

0.998

0.997

F test Husman test

632.6 24.58

514.8 17.45

Number of therapy institutions per 10000 population

Number of teachers per 10000 students

2.01 (29.9) 0.998 446.7 24.76

0.06 (3.61)

0.2 (3.65)

1.84 (24.6) 0.998 689.7 12.84

1.97

1.7

(28.3) 0.998

(17.1) 0.997

610.4 28.52

438.3 17.01

0.997 394.3 17.8

Note. – T statistics are in parentheses. V. Results Human capital factors such as health and education indexes influence output and economic growth. This paper examined the effect of health and education indexes on the economic growth of Iran 28 provinces during the time span (2000-2007). The results from final panel data model showed that number of therapy institutions per each 10000 population, number of hospital beds per each 10000 population, number of teachers per 10000 students and number of graduates from high school per each 10000 population above 10 years old indexes accompanied by physical capital and labour have a positive and meaningful effectiveness on the economic

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growth. According to the positive and considerable effect of both hygiene and education sector on the economic growth, it could be stated that allocating more budget to these two sectors is one of the most important means to achieve more economic growth and development. Comparison between the effectiveness magnitudes of indexes showed that hygiene sector has more effect on the economic growth, relative to education sector. Thus in economic growth and development policies should better concentrate on development of hygiene sector.

1. 2.

3. 4. 5. 6. 7. 8. 9. 10.

VI. References Baldacci, E., Clements, B., Gupta, S., Cui, Q., (2008) Social spending, human capital, and growth in developing countries, World Development, 36, 1317- 1341. Beraldo, S., Montolio, D. and Turati, G., (2009), Healthy, educated and wealthy: a primer on the impact of public and private welfare expenditure on economic growth. The Journal of Socio- Economics, 38, 946-956. Bhargava, A., Jamison, D.T., Lau, L.J. Murray, C.J.L., (2001) Modelling the effects of health on economic growth, Journal of Health Economics, 20, 423-40. Bils, M., Klenow, P. J., (2000) Does schooling cause growth? The American Economic Review, 90, 1160-1183. Bosworth, B. P., Collins, S. M., (2003) The empirics of growth: an update, Brookings Papers on Economic Activity, 2.2 (September), 113-206. Cole, M.A., Neumayer, E., (2006) The impact of poor health on total factor productivity, Journal of Development Studies, 42, 918-938. Li, H. and Huang, L., (2008), Health, education and economic growth in China: empirical findings and implications. China Economic Review, 20, 374-387. Mankiw, N. G., Romer, D. and Weil, D., (1992), A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-437. Ricci, F., Zachariadis, M., (2007) Determinants of public health outcomes: A Macroeconomic Perspective, June, mimeo. Rivera, B. and Currais, L., (2004), Public health capital and productivity in the Spanish regions. World Development, 32(5), 871-885.

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