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Much work has been done analyzing the determinants of health care expenditures. Much less effort has been devoted to analyzing the determinants of health itself. The focus of the analysis presented here is the production of health, with special attention paid to disaggregating health into pharmaceuticals and other health care. We also analyze the effects that wealth and certain lifestyle factors have on health.Researchers who have analyzed the determinants of health across geographic units have found certain striking and consistent results. First, basic public health services, in the form of potable water and sanitation services, provide the biggest payoffs in decreased mortality for all age groups. Second, the expansion of health care services does not improve mortality to anywhere near the extent that public health infrastructure development does, if at all. Some researchers have even found positive relationships between some health care inputs and mortality. The results on income and wealth have been more mixed. In studies which have analyzed developing countries, researchers have found that higher incomes are negatively related to mortality. Other researchers have found exactly the opposite result when they have limited their samples to rich countries and/or regions thereof. Many researchers have also found that lifestyle factors such as nutrition, and cigarette and alcohol consumption, are important determinants of health.Very few studies have estimated the effects of pharmaceutical consumption on mortality rates either directly or indirectly. The studies which have dealt with this directly in an international comparison context have had serious flaws. Some micro studies and many studies of restricted formularies in the United States Medicaid program have provided indirect evidence that pharmaceutical consumption has a positive impact on health.To investigate whether such an effect could be found in an analysis of international data, we analyze a sample consisting of 21 OECD (Organization for Economic Cooperation and Development) countries as of the early 1990s. We convert pharmaceutical and total health care expenditures to U.S. dollars using purchasing power parity exchange rates for pharmaceuticals and health care, respectively. The purchasing power parities were provided by the OECD. Although other conversions are available for a limited number of countries, the measures of pharmaceutical and other health care consumption used here are the best available for a large number of OECD countries.

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H. E. Frech III

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Richard D. Miller Jr.

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