PRESTON CURVE DOES IT WORK?

MARKS OBTAINED 3.5/05

ECONOMICS SYNOPSIS

NAME - HARDIK NAIN

ENROLLMENT ID - 2016 021

SEMESTER - IST

COURSE - B.A LL.B

SUBMITTED TO DR. RAHUL SAPKAL

PROF. ROHIT JADHAV

DATE 20/02/2017 TIME

INTRODUCTION

The relationship between income and life expectancy has been demonstrated by a number of
statistical studies. The so-called Preston curve, for example, indicates that individuals born in
wealthier countries, on average, can expect to live longer than those born in poor countries 1. It is
not the aggregate growth in income, however, that matters most, but the reduction in poverty.
This article explores how the connection between per capita GDP and life expectancy weakens
after reaching a certain level, and looks at examples where income gains did not translate into
life expectancy improvements.

FIGURE 1: PRESTON CURVE IN 2012

Source: Euromonitor International

Note: GDP is measured at purchasing power parity and reflects differences in price level between
countries.

1
Following the empirical work of Preston (1975), who plotted life expectancy against income per capita
for a cross section of countries for the 1900s, 1930s and the 1960s and found that the relationship held
for each of the three decades.
INCOME AND LIFE EXPECTANCY

The most obvious explanation behind the connection between life expectancy and income is the
effect of food supply on mortality. Historically, there have been statistically convincing parallels
between prices of food and mortality 2. Higher income also implies better access to housing,
education, health services and other items which tend to lead to improved health, lower rates of
mortality and higher life expectancy. It is not surprising, therefore, that aggregate income has
been a pretty good predictor of life expectancy historically.

If we look at the world today, however, the relationship between income and life expectancy
begins to weaken once income reaches a certain level. This is well illustrated in the developed
countries example in Figure 2. The Preston curve for developed countries (IMF definition) is
much leaner compared to that of total number of countries.

In 2012, a child born in Hong Kong could expect to live for 83.6 years, the longest in the world.
The next countries in the longevity list were Italy, Switzerland, Japan and France, all of which
have a rather significant variation in income. One of the biggest outliers among developed
countries was the US high per capita GDP but rather low life expectancy. The three Eastern
European countries the Czech Republic, Slovakia and Estonia recent entrants to the
developed countries list, have comparably lower incomes and also lower life expectancy.

2
Livi-Bacci, M, A Concise History of World Population, (MA: Blackwell Publishers, 2001) 82-109.
FIGURE 2: LIFE EXPECTANCY FOR DEVELOPED COUNTRIES, 2012

HIGHER INCOME DOES NOT ALWAYS LEAD TO HIGHER LIFE EXPECTANCY

There is one important detail not readily apparent in the above two charts the definition of a
developed country. The formal developed list used here is taken from the IMF, and its definition
for a developed country includes three main criteria:

1. Per capita income level

2. Export diversification

3. Degree of integration into the global financial system

Most importantly, income is not the only criteria, and a number of countries that are wealthy but
not industrialised are not included in the list. Many mineral resource-rich economies, for
example, have a high per capita GDP, often far exceeding the standard US$20,000 threshold for a
country to be considered as developed, but are not considered developed countries because of
export diversification criteria. So the list of developed countries already includes a number of
assumptions that do not allow for objective comparison of income and life expectancy.

Instead, we may look at specific income bands and life expectancy. Using Passport, we took data
for 47 countries where per capita GDP in PPP terms exceeds US$20,000, US$ 30,000 and
US$40,000 and plotted this against life expectancy. The first takeaway, is that countries with
income above US$20,000 (a threshold for developed country) have a much steeper curve than
the list of developed countries, so the Preston curve is more relevant when we look at all
countries (see Figure 3).

If we begin raising the income band, however, the relationships begins to weaken. For countries
where GDP per capita (PPP terms) exceeds US$30,000, the relationship between income and life
expectancy becomes non-significant. For countries where income exceeds US$40,000, the
relationship becomes inverse.
FIGURE 3: FOR THE WEALTHIEST COUNTRIES, INCOME-LIFE EXPECTANCY
RELATIONSHIP IS INVERSE

Source:EuromonitorInternational
Note: The horizontal axis shows per capita GDP in purchasing power parity terms.

PROS AND CONS OF INCOME GROWTH

A number of reasons may explain the peculiarities of the income and life expectancy trends. The
first, largely mathematical explanation refers to income inequality. Although higher average
income can contribute to improved uniform access to certain necessities that tend to improve
health, this is by no means a given. Some countries, like Qatar and Kuwait, have very high GDP
but also a large expat population and significant income inequality. Increases in per capita
income occur mainly as a result of more wealth being accumulated in the top percentile of
society which already enjoys high living standards and longevity, and as such the real effect on
the countrys life expectancy would be negligible3. Secondly, higher income also correlates with
a number of unhealthy habits, such as tobacco and alcohol consumption and less healthy diets,
which in turn leads to weakening health.

Average life expectancy in South Africa, for example, dropped from 62 to 51 years over 1992-
2005 despite the fact that per capita GDP grew almost seven-fold during that period. Similar
trends were seen in several other African countries, which have a history of severe income
inequality, making them highly susceptible to the spread of HIV because of general neglect of
public health care systems.

3
Ibid
FIGURE 4: LIFE EXPECTANCY DECLINED IN SOUTH AFRICA OVER 1980-2012
DESPITE RISE IN GDP PER CAPITA

Source: Euromonitor International

In 1990, people in South Africa, despite their much higher level of income, had substantially less
chance of reaching old age than people in China, Sri Lanka, The Dominican Republic or
Colombia. A number of other outliers also exist. In 2012, Slovakia had lower life expectancy
than much poorer Dominica. Similarly, and rather interestingly, Cuba, despite its relatively low
GDP per capita, had a similar level of life expectancy to the US.
Of course, this does not imply that economic growth is unimportant in boosting life expectancy.
It appears, however, that its significance lies in the way that benefits are distributed between
people, rather than growth of average income per se. Hence, in emerging economies in particular,
it is not growth in aggregate incomes that matters but a reduction in poverty. Economic growth
has the biggest impact if it is used to finance suitable social services, such as the public provision
of clean drinking water, sanitation, health care, epidemiological protection and basic education.
Other fundamental factors that lead to an improvement in life expectancy include better nutrition,
social security, political stability and a reduction in violence, as can be seen in the correlations
table below.

TABLE 1: CORRELATIONS BETWEEN LIFE EXPECTANCY AND

ECONOMIC/SOCIAL INDICATORS

Source:EuromonitorInternational
Note: 34 (developed), 169 (emerging and developing)

Looking at developed and emerging economies separately reveals that not only GDP/life
expectancy correlation is a lot stronger in emerging countries, but also certain other indicators
are a lot more important for developing nations. For example, the correlation coefficient between
life expectancy and access to improved sanitary facilities was 0.77 for emerging economies in
2012, compared to 0.47 in developed countries. Similarly, access to clean water correlated
strongly with average life expectancy in emerging nations (r=0.70 versus 0.38 in the developed
world). Also, the average supply of food calories per day correlated strongly with average life
expectancy in emerging and developing countries.

Expenditure on health was also a lot more important in emerging economies, where existing
healthcare facilities are so basic that every extra dollar poured into the sector can have a sizeable
effect. Certain infectious and parasitic diseases and diseases of the respiratory system in
particular require government attention in order to be controlled and/or eradicated. Infants and
small children tend to be very vulnerable to such diseases, and the infant mortality rate correlates
especially strongly with overall life expectancy in developing markets.

Finally, political stability, control of corruption and absence of violence correlated more with life
expectancy in emerging countries than in developed nations.

Meanwhile, in todays developed countries, the negative side effects of income growth namely
its detrimental impact on health after personal affluence reaches a certain level can partially
outweigh wealth-facilitated improvements. Physical inertia, increased consumption of
automobiles, alcohol, tobacco, sugar and animal fats are all features of Western society today,
mainly because high per capita income has made such consumption possible. In particular,
smoking, alcohol consumption and obesity are the major risk factors with biological effects on
health and demographic patterns.4 Studies have shown that on average smokers experience a
higher mortality rate than their similarly aged non-smoking counterparts 5, while the obese,
especially the morbidly obese, experience much greater risk of mortality from cardiovascular
disease6 and ischemic stroke7.

While the relationship between obesity/alcohol/smoking and average life expectancy in the
developed world is not particularly strong at the moment (r= -0.37, -0.40 and -0.42,
respectively), it is statistically significant and increases over time. For example, the correlation

4
Doll, R, Peto, R, Wheatley, K, Gray, R and Sutherland, I, Mortality in relation to smoking: 40 years
observations on male British doctors, British Medical Journal, (1994), 309, 901911.
5
Flegal, K, Graubard, B, Williamson, D and Gail, M, Cause-Specific Excess Deaths Associated with
Underweight, Overweight and Obesity, Journal of the American Medical Association (2007) 298,
20282037.
6
ibid
7
King, G and Soneji, S, Statistical Security for Social Security, Population Association of America
(2012).
coefficient between obesity and life expectancy in developed countries grew from 0.18 in 1990,
to 0.28 in 2000 and 0.37 in 2012. Similar trends are seen in the relationship between smoking
and life expectancy. This is especially evident if we talk about healthy life expectancy as
opposed to overall life expectancy.

TO WHAT EXTENT CAN INCOME EXPLAIN LIFE EXPECTANCY TRENDS?

In this context, average income fails to act as a representative health indicator, and rich nations
can actually perform worse on a number of health indicators compared to relatively poor
economies. Preston, for example, having modelled the relative contribution of economic factors
to increases in life expectancy during the 20th century, concluded that factors exogenous to a
countrys current level of income could account for up to 90% of the growth in life expectancy
between the 1930s and the 1960s. Income growth per se accounts for only 10-25% 8. Further
research from Anand and Ravallion revealed that the connection between GNP per capita and life
expectancy tends to vanish when we exclude incomes specifically of the poor and public
expenditure specifically on healthcare.

It could be argued that in emerging and developing countries, where labour tends to be very
cheap, it makes sense to invest in labour-intensive services such as sanitation and healthcare as
their net cost to society is actually very low, and gains can be substantial.[1] Meanwhile, fighting
obesity and smoking two increasingly pressing issues in the developed world could add more
healthy years to life expectancy averages in todays rich countries.

Note: In the article income refers to disposable income per capita, and is used interchangeably
with GDP per capita. The two measures correlate very closely and are a good proxy for each
other, but GDP data is available for more countries.

8
Preston, The Changing Relation between Mortality and Level of Economic Development, 486.
 BIBLIOGRAPHY

ARTICLES REFERRED

Georgios Georgiadis, Jos Pineda, and Francisco Rodrguez. "Has the Preston Curve Broken
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VoaalWmPzF76LTga3_QhyalfuPnQSTlt1pdeMw2B-
74gihvA26iZWUA3HEeJr3s1VWKoQDR5Zo5UK89GBsLRuUY0kdRSHYcunn28i4JkUJYtQ
AQkiH9lk7lIjItzMKwmszhdjOf-hNDtp-
638MHw5IHmXO1L25YUOS6tE58wPhXSk87UIsVjKnmPEhJvwARv03U2EGRqPMSnpJ-
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M. J. Husain. "Revisiting the Preston Curve: An Analysis of the Joint Evolution of Income and
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https://www.keele.ac.uk/media/keeleuniversity/ri/risocsci/docs/economics/workingpapers/LeY_
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Juan Garcia, Jasper Narvil, Soobin Oh. "Modern Day Evaluation of the Preston Curve: The
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https://smartech.gatech.edu/bitstream/handle/1853/56046/relationship_between_life_expectancy
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Samuel H. Preston. "The Changing Relation between Mortality and Level of Economic
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ANGUS DEATON. "Health, Inequality, and Economic Development." March 2003. (Accessed-
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Livi-Bacci, M, A Concise History of World Population, (MA: Blackwell Publishers, 2001) 82-109.

Doll, R, Peto, R, Wheatley, K, Gray, R and Sutherland, I, Mortality in relation to smoking: 40 years
observations on male British doctors, British Medical Journal, (1994), 309, 901911.
 Flegal, K, Graubard, B, Williamson, D and Gail, M, Cause-Specific Excess Deaths Associated with
Underweight, Overweight and Obesity, Journal of the American Medical Association (2007) 298, 2028
2037.

King, G and Soneji, S, Statistical Security for Social Security, Population Association of
America (2012).

Preston, The Changing Relation between Mortality and Level of Economic Development, 486.

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