Productivity of Household Investment in Health: The Case of Colombia

Abstract

The purpose of this study is to understand how public and private investments in health in Colombia are related to future earnings of individuals. The returns to good health of individuals and the determinants of the health production function are analyzed. The magnitude of the returns to having good health status is identified through the direct effect of health variables on earnings of individuals. Regional (rural-urban) and gender aspects are considered separately. The significant IV estimates showed that one more day of disability decreased male rural earnings by 33% and female by 13%, that having a disability in a given month decreased the earnings of an urban male by 28% and by 14% for an urban female, and that having one more centimeter of stature increased urban female earnings by 6. 9% and urban male earnings by 8%. These returns to height are much larger than those found in other countries and reveal that investments in nutrition are as important as investments in education for future increases in productivity and growth. Estimations of health production functions showed that it would be desirable to increase social security coverage in rural areas in order to see a lower incidence or duration of illness in these regions. However, in urban areas, where the system of social security is more developed, social security may increase the tendency to report illness. In general, wealthier individuals tend to have better health and the interaction between non-labor income of the individual and adequate housing affects positively the health status of individuals. Policies oriented to increase the coverage of basic services in households, such as electricity, potable water or sewage, have a negligible effect on height and, through height, on productivity. Policies oriented to provide more adequate housing translate into better health conditions and productivity for individuals.