Medical Innovation, Life Expectancy, and Economic Growth

Kuhn, M., Minniti, A., Prettner, K., & Venturini, F. (2023). Medical Innovation, Life Expectancy, and Economic Growth. SSRN Electronic Journal 10.2139/ssrn.4491818.

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Abstract

Despite the increasing recognition of the importance of health for economic growth, the role of medical innovation in this process remains largely unexplored. Specifically, what are the causal effects of medical innovation on economic growth, and what shape does this relationship take? To address these questions, we propose an R&D-based economic growth model with overlapping generations, wherein life expectancy depends on healthcare utilization and medical innovation, and we then empirically test the model’s implications. Our findings reveal a clear causal pathway from medical innovation to economic growth, with increasing life expectancy serving as a key transmission channel. In the early stages of development, medical innovation does not have a positive effect on economic growth, whereas in intermediate stages, a positive and significant effect emerges. In late stages of development, where life expectancy is already very high, the effect becomes weaker and potentially negative because health improvements are increasingly difficult to achieve and become more resource-intensive.

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