The economic impact of health care provision: a CGE assessment for the UK

Rutten, Martine (2004) The economic impact of health care provision: a CGE assessment for the UK. PhD thesis, University of Nottingham.

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This thesis seeks to determine the macro-economic impacts of changes in health care provision, whilst recognising the simultaneous effects of consequent changes in health on effective labour supplies and the resource claims made by the health care sector. The resource allocation issues have been explored in theory, by developing an extension of the standard Rybczynski theorem from a low-dimension Heckscher-Ohlin framework, and empirically, by developing a Computable General Equilibrium model, calibrated to a purpose-built dataset for the UK.

The theory predicts that, if the government is solely concerned with improving per capita income, a morally questionable policy of targeting health care provision towards skilled workers performs best. Furthermore, the impact of an expanding health sector on the outputs of non-health sectors is shown to depend on the sign and magnitude of a scale effect of increased effective labour supplies and a factor-bias effect of changes in the ratio of skilled to unskilled labour, although the latter effect dominates if effective labour supplies are relatively inelastic with respect to health care provision.

The theoretical predictions are not generally validated by the applied model due to added real-life complexities. The main findings are that a rise in NHS expenditures, the employment of foreign health care-specific skilled workers, and costless factor-neutral and skill-biased technical change in the UK health sector have a positive impact upon overall welfare via direct improvements in population well-being and indirect benefits from increased worker incomes. The study indicates that if an expansion of the health sector is financed from a reduction in state benefits, the non-working households and pensioners may require some compensation since they rely relatively heavily on these as a source of income.

The presence of health care-specific factors and rising pharmaceutical prices impact negatively upon the health sector and overall welfare, suggesting the importance of tackling rising input costs and structural rigidities. This may be achieved by the immigration policy, although since effects on domestic workers if their wages are not sustained, and on countries of origin faced by a 'brain-drain', are negative, in the long-term increasing the number of medical school places may be more desirable. Another suitable policy response is to purchase a more effective pharmaceutical product. Fairly small productivity gains in health care were shown to generate overall welfare gains. Finally, factor-neutral and skill-biased technical improvements yield significant welfare gains and cost-savings in the health sector. Such technical improvements may come in the form of improved medical procedures, which have been developed abroad yet are freely available or have been funded by charitable institutions, but also may reflect domestic policy which aims at reducing administrative overheads so that more resources can be devoted to front-line staff.

The sensitivity of the results to the elasticity of the waiting lists with respect to health care indicates the importance of ensuring that additional resources are effectively employed, attainable by the technical and administrative improvements in health care.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Reed, G.V.
Blake, A.
Keywords: CGE, Heckscher-Ohlin, Rybczynski, health care, health, welfare, labour market, effective labour supplies, relative factor supplies, relative factor intensities, medical migration, technical change, waiting list, NHS, United Kingdom.
Subjects: R Medicine > RA Public aspects of medicine > RA 421 Public health. Hygiene. Preventive Medicine
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > School of Economics
Item ID: 10318
Depositing User: EP, Services
Date Deposited: 23 Oct 2007
Last Modified: 17 Oct 2017 10:32

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