Effects of life expectancy on economic growth: new results using the flexible Box–Cox power transformation model

ABSTRACT

This article revisits the effects of life expectancy (LE) on economic growth reported in previous research. Maximum likelihhod estimates are obtained based on the monotonic nonlinear flexible Box–Cox power transformation regression model. This variance stabilizing model, unlike the a priori restrictive nested log and linear forms, is a parametrically richer flexible functional form for transforming the dependent and independent variables separately with different power parameters. The conditional LE elasticity of income estimates are found to vary across fitted models and the more robust flexible Box–Cox power model outperforms the restrictive linear and log specifications fitted in past work. Contrary to past findings indicating large negative and highly elastic (statistically significant) LE elasticity of income, new results from the preferred fully flexible Box–Cox model incorporating the nonlinear effect yield a much smaller negative (statistically significant) and inelastic LE elasticity of income estimate. The study explores some policy options for enhancing economic growth during periods of high or rising LE.

KEYWORDS:

• Flexible Box-Cox transformation
• non-linearity
• life expectancy
• economic growth
• elasticity

JEL CLASSIFICATIONS:

• I1
• O1

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The same interaction term with a quadratic form is used as an instrument.

² Regression Equation Specification Error Test (RESET) and the Ramsey/Pagan–Hall test justify the inclusion of nonlinearity in AJ’s IV model.