Mutual exchange promotes healthy outcomes

Philip Stevens & Jasson Urbach | 13 Mar 2012
Free Market Foundation
When anti-globalisation critics argue that free trade generates unhealthy outcomes, it is often in an attempt to take the moral high ground by purporting to act on behalf of poor people. They argue that free trade directly harms people's health in a number of ways such as increasing income inequality and economic insecurity, increasing the availability of unhealthy processed foods, and by polluting the environment. Yet, despite these contentions, there is very little literature that empirically examines the relationship between trade and health.

We recently co-authored with Gabrielle Wills a paper entitled Healthy Trade. In it, we examine the relationship between a country's openness to international trade and several health outcomes, building on two previous studies that analyse this question, namely Wei and Wu (2002) and Owen and Wu (2007). These studies found an association between increased trade openness and improved health outcomes measured in terms of life expectancy and infant mortality. Owen and Wu found this relationship particularly marked in countries lower down on the income scale. These studies used data up to 1997 and 1995 respectively. For our analysis, we use data up to 2005 to determine whether this relationship continued in the subsequent decade. In addition, we examine the moves towards bilateral and regional free trade agreements and their impact on health outcomes.

Our analysis shows that there is a clear and unambiguous relationship between trade openness and improved life expectancy and infant mortality rates, a relationship that is particularly marked for low-income countries. The implications are clear: policymakers - particularly those from low-income countries - should continue to pursue trade liberalisation in order to improve the welfare of their citizens. While our analysis stops short of providing answers as to why this might be the case, the existing literature provides some obvious clues. There appear to be two main mechanisms through which trade liberalisation improves health: firstly, and most visibly, via the improved incomes that arise from increased openness to trade; and, secondly, via the world-wide diffusion of knowledge that has accompanied greater economic globalisation and trade liberalisation. This second contention reiterates the main conclusion of the earlier study by Owen and Wu.

Intuitively it makes sense that there is a strong relationship between income and health, not least because greater wealth buys greater access to the basic determinants of health: nutrition, better accommodation, and sanitation. This relationship was confirmed by the economists Lant Pritchett and Lawrence Summers who showed the dramatic effect that increases in incomes can have on health. They found a strong causative effect of income on infant mortality, and demonstrated that if the developing world's growth rate had been 1.5 percentage points higher in the 1980s, half a million infant deaths would have been averted.

More specifically, basic health indicators improved noticeably in the more developed countries from the mid- to late nineteenth century, when they introduced cleaner water supplies and began to instigate basic public health measures, such as sanitation, pasteurisation, and vaccination. They improved again when, in the first half of the twentieth century, antibiotics, pesticides such as DDT, and an array of vaccines were added to the arsenal of weapons against disease. Only once traditional infectious and parasitic diseases were essentially conquered, did richer countries turn their ingenuity and wealth towards dealing with the increasing burden of non-communicable diseases such as heart disease, cancer and pulmonary conditions. While non-communicable diseases have not yet been defeated, a vast array of new treatments, drugs and technologies now exist to mitigate their effects and, in some cases, cure these diseases.

It is clear that humanity owes its current, unprecedented good health to growing prosperity and the diffusion of advances in knowledge. But much of this economic growth and diffusion of health knowledge could never have been achieved without the dramatic increases in international trade that characterised the late nineteenth century and second half of the twentieth century.

Indeed, we suggest that part of the explanation for the positive relationship between trade and health is likely due to the knowledge spillovers facilitated by increased trade. Naturally this makes sense; technologies developed by more prosperous and technically advanced economies can only be transferred to developing economies that are open to trade. In other words, openness provides developing economies the opportunity to 'piggy-back' off of technologies and 'leap-frog' up the developmental ladder. For example, vaccines or pharmaceutical drugs and devices produced and manufactured in developed countries may benefit developing countries provided they are allowed to enter those countries without delays caused by bureaucratic procedures and other obstacles.

Our research demonstrates that trade liberalisation should remain an important goal not only for economic purposes, but also for improving human welfare and health. This is particularly important for lower and middle income countries, many of which still labour under a plethora of tariff and non-tariff barriers.

Most economists agree that the best way to move from poverty to prosperity is to reduce barriers to trade. An ever increasing amount of evidence, both empirical and anecdotal, supports the fact that, contrary to concerns espoused by anti-globalisation critics, countries that are more open to international trade are not only wealthier but also healthier.

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