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Inflation and health in a Schumpeterian growth model: Theory and evidence

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  • He, Qichun
Abstract
Researchers have found many benefits of good health. However, health investment may be subject to borrowing constraints. In this study, we incorporate endogenous health investment in a scale-invariant Schumpeterian growth model. We find the following. When the cash-in-advance (CIA) constraint does not apply to medical expenditures, long-run growth does not depend on the nominal interest rate. In contrast, when the CIA constraint does apply to medical expenditures, an increase in the nominal interest rate leads to a decrease in both R&D and health investment, which in turn reduce the long-run growth rates of technology and output. Nevertheless, welfare is always a decreasing function of the nominal interest rate, and the welfare loss is greater under the CIA constraint on medical expenditures. As an empirical test, we build panel data for 61 countries during the years 1995–2014. We find a significant, negative effect of inflation on out-of-pocket health expenditure (% of total expenditure on health) of the World Development Indicators of the World Bank, which provides support for our theory. The policy implication is that government financing of health care for the poor can offset this effect.

Suggested Citation

  • He, Qichun, 2018. "Inflation and health in a Schumpeterian growth model: Theory and evidence," Economic Modelling, Elsevier, vol. 75(C), pages 159-168.
    • Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:159-168
    DOI: 10.1016/j.econmod.2018.06.015
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    Cited by:

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    2. Qichun He, 2020. "The COVID-19 Pandemic in a Monetary Schumpeterian Model," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 15(4), pages 626-641, December.
    3. Lu, You-Xun, 2022. "Interactive effects of monetary policy and patent protection: The role of endogenous innovation size," Economic Modelling, Elsevier, vol. 113(C).
    4. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    5. Kornelia Piech, 2022. "Health Care Financing and Economic Performance during the Coronavirus Pandemic, the War in Ukraine and the Energy Transition Attempt," Sustainability, MDPI, vol. 14(17), pages 1-23, August.
    6. Angus C. Chu & Guido Cozzi & Haichao Fan & Yuichi Furukawa, 2021. "Inflation, Unemployment, and Economic Growth in a Schumpeterian Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 874-909, July.
    7. He, Qichun, 2023. "The inverted-U effect of inflation on growth: Cross-country evidence," Economic Modelling, Elsevier, vol. 128(C).
    8. Angus C. Chu, 2022. "Inflation, innovation, and growth: A survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 863-878, July.
    9. Jemiluyi Olufunmilayo & Jeke Leward, 2023. "A Comparative Assessment of the Urbanization – Fertility Nexus in Most Urbanized Countries of Sub-Saharan Africa," Zagreb International Review of Economics and Business, Sciendo, vol. 26(1), pages 165-183.
    10. He, Qichun & Zhang, Zhixiang, 2019. "Inflation and Growth: An Inverted-U Relationship," MPRA Paper 97092, University Library of Munich, Germany.
    11. Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    12. He, Qichun, 2018. "Health and Innovation in a Monetary Schumpeterian Growth Model," MPRA Paper 85218, University Library of Munich, Germany.
    13. Deng, Zhongqi & Song, Shunfeng & Jiang, Nan & Pang, Ruizhi, 2023. "Sustainable development in China? A nonparametric decomposition of economic growth," China Economic Review, Elsevier, vol. 81(C).
    14. Lu, You-Xun & Chen, Shi-kuan & Lai, Ching-chong, 2022. "Monetary Policy and Economic Growth in a Schumpeterian Model with Incumbents and Entrants," MPRA Paper 112177, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary policy; Innovation; Health; Economic growth; Welfare; Panel data;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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