# Learning outcomes - Define macroeconomics, and be able to distinguish it from microeconomics - [[Microeconomics is the study of choice at the individual or firm level, while macroeconomics is the study of choice on a societal level]]. To distinguish it from microeconomics, macro looks at the behavior of national or regional economy as a whole, even global. - Explain key macroeconomic terms, including gross domestic product (GDP), gross national income (GNI), national income, inflation, economic growth, currency depreciation, balance of payment (BOP) - GDP is the sum or total of produced goods and service in a country - GNI is the sum of total produced goods and services from the citizens of a country, regardless where they are. - national income can mean [[Gross Domestic Income (GDI)]] which measures the income received from all economic activities that take place within a country or region - Inflation in general is the increase of price and decrease value of money. Inflation is a policy, as said by one philosopher. Inflation can influence health, for example increasing consumption and boost economy, give money to the borrower, and - Briefly discuss links between global ==macroeconomic activity, health and healthcare== - Discuss the relationship between GDP and healthcare expenditure and population health - Appreciate the routes through which ==greater macroeconomic integration== at the global level may impact on health and health care # 2. Key macroeconomic terms > Macroeconomics is the study of whole economies, behaviour of a national or regional economy as a whole, is a branch of economics that deals with performance, structure, behavior, and decision-making of an economy as a whole, includes regional, national, and global economies. ## 2.1 Terms and Concepts [[Gross Domestic Product (GDP)]] is the main indicator used to measure the size or oyutput of a nation's economy. GDP represents the total value of goods and services produced within one year in a specific geographic location (country or region) regardless of who produces it. GDP measures the total ==price paid== for all goods and services consumed within that territorial space. Some issues with GDP: it can be increased through debt or inflation to increase consumption. It also can be increased through unforeseen and atypical events. For example, if all people crashed their cars, it would increase the GDP due to repair and replace cost. So while increased GDP is good, but GDP can be increased through debt or inflation to increase consumption because truthfully, GDP measures the total price paid for all. Economists also use the measure of [[GDP per capita]] as a measure of a country's wealth. This means GDP divided by the population of the country and thus indicates the level of economic output relative to the size of the population. Another measure is [[Gross Domestic Income (GDI)]] which measures the ==income received==from all economic activities that take place within a country or region (including wages, profits, rents, and interest). > GDP measures total price paid to consume the goods and services within an economy, GDI measures the income received by individuals, firms, the public sector etc to produce these. [[Gross National Income (GNI)]] which was formerly called Gross National Product (GNP) also measures the output of economic activities undertaken by the citizens and firms of a country, regardless of in which country the activity takes place. In other words, [[GNI is calculated as GDP plus income earned by a country’s citizens from abroad, minus income earned in that country by foreign citizens.]] As with GDP, economists also use GNI per capita to measure income relative to the overall size of a country. [[GNI per capita]] is used internationally to classify countries into stages of development, i.e., by World Bank to classify low income, lower-middle-income, upper-middle-income, and high income. ## 2.2 Comparing economies Exchange rates tell you the value of one country’s money in terms of another country’s currency. Sometimes country can deliberately devalue their currency to combat trade imbalances (e.g. increase exports and reduce imports.) Fluctuations in exchange rates are very important as every country imports and exports goods and services (known as international trade), and ==a change in the exchange rate will affect the costs of goods and services bought from or sold overseas== which, in turn, will affect demand for those goods and services. GDP is commonly used to compare economies since it represents the value and services produced WITHIN a country's borders. The problem is prices varied between countries. There's a stark difference between GDP per capita in India and USA in 2019 was $65,281 and $2,104. It looks like India is much poorer, but the prices of goods and services are relatively cheaper in India. That's why it's important to adjust the prices, called [[purchasing power parity (PPP)]]. In 2019, World Bank estimates that per capita GDP for India was US $7,034. International comparisons of GDP often use PPP-adjusted values to obtain more valid results. GDP is also used to measure trends in economic activity. A recession is generally defined as a downturn in the level of economic activity, with real GDP (GDP which has been adjusted for inflation or deflation) falling in two or more successive quarters. A depression is more severe than recession. Economic depression: real GDP has decreased by more than 10%; the most famous famous example was the Great Depression of 1930, where the global GDP decreased by almost 27%. The flow of money (transactions involved in import and export) between countries is measured by the balance of payments (BOP). If the BOP deficit, means the country has to pay out from currency reserves held by their government in a currency that is accepted form of international payment, such as the US dollar. Inflation refers to the general rise of prices through time, which results in the decrease of the real value of money (i.e. the volume of goods and services which you can buy). In other words, a dollar today is worth less than a dollar last year, in terms of its purchasing power. Economists measure inflation using a **price index.** A price index is created by defining which goods are frequently purchased by households, such as food items. These goods' price is monitored. The price changes measure inflation. Price indices are often called the consumer price index or the ==retail price index==. The basket of goods that are measured is determined locally in each country and so the items measured in each country may be different. The prices of some items may go up and others may go down, and the net change of the overall basket, as a whole, determines the price index. ### What is current and constant dollar? What's the relation to monetary policy and fiscal policy? Current and constant dollar are used to measure the value of spending, with and without inflation. Current dollars refer to actual dollars spent, while constant dollars refer to values (of spending) that have been adjusted for inflation, and therefore reflect the 'real' or actual purchasing power, compared to a baseline. In economic analysis, it's common to use constant values, so that real trends can be analysed over time accounting the effect of inflation. > [[Monetary policy]] is that adopted by a government to reach its objectives by adjusting interest rates and the amount of money in circulation. [[Fiscal policy]] is used by a government to influence the economy through taxes and government spending – including providing subsidies. ## Activity 2.1 - Inflation can have a positive impact? [[Think it through]] The following article is from 2015 but it gives a nice overview of the positive and negative aspects of inflation to a country’s economic wellbeing from different perspectives. “How can inflation be good for you?” from BBC News Online, January 2015 by Brian Milligan, Personal Finance Reporter, BBC News. https://www.bbc.co.uk/news/business-30778491. Inflation stimulates economic grwoth Imagine if the price of the car instead of the gas is falling. Instead of buying yourself a new car this year, why not buy it next year when it might be hundreds of pounds cheaper? ==Inflation encourages people to buy sooner, spend their money, and boosts economic growth==. Inflation benefits borrower Inflation erodes debt. In the 70s, inflation peaks at 13%, wages were rising fast too, so the mortgage repayments were taking an ever smaller share of our income. By contrast, deflation - or falling prices - increases the real value of debts. Inflation affects wages Rising prices makes it easier for companies to put up wages. Even if companies not to increase wages by as much as inflation, but still offer their staff some sort of rise. In the world of zero inflation, companies might be forced to cut wages. The government likes inflation because they have a huge debt, with inflation it is eroded, tax revenue go up even if the economy is stagnant. **Too much inflation is not good though.** It will reduce the value of money, unless interest rates are higher than the inflation. The higher inflation gets, the less chance there is that savers will see any real return on their money. > Inflation is a policy. — said the Austrian philosopher and economist [[Ludwig von Mises]] [[Question]] Consider different ways in which inflation has, is, or could have a positive or negative impact in a country you are familiar with. # 3. Macroeconomics and health Macroeconomic consideration of the economy means across markets/sector rather than a microeconomic (singular health-sector focused) ## 3.1 National economy and health Macroeconomy will impact health both directly through changes in income, nutrition, environment, education; and indirectly, through the impact of tax and other regulatory policies on demand for and supply of food, tobacco, alcohol, firearms. [[From a global health policy perspective, two specific areas of macroeconomics are of most relevance: economic prosperity and government revenues]]. Much of macroeconomic policy is concerned with facilitating economic growth (increasing levels of GDP). Higher GDP leads to greater opportunities to better health, but not necessarily increases in GDP result in good or improved health outcomes at the population level. This happen, because increased economy size must also be distributed throughout the population: depend on policies in place to redistribute wealth and tackle health and other inequalities. > Most macroeconomic indicators do not account for these distributional impacts and are focused on the aggregate of total income, employment, trade volume, etc., rather than the composition of that total. For example, employment creation is often accompanied by job destruction as labour moves from one sector or industry to another. This process is known as [[churning]], and it requires social safety nets and smooth employment transition mechanisms in order to minimize material and psychological stress to workers and their families. ## 3.2 Economic stability, crisis and health [[Economic stability]] occurs when growth is fairly consistent from year to year and prices/inflation do not fluctuate very much. Instability results in volatile markets, increased frequency of external shocks and increased impact of such shocks. Just as we saw with COVID-19 pandemic Economic instability will increase the likelihood of impoverishment due to ill-health, and will generate investor reluctance, including within the health sector itself. Economic stability is affected, among other things, by the proportion of income and economic growth dependent on trade, with general view that trade liberalisation results in more volatile markets. However, liberalised economy does not automatically lead to economic instability and shocks, a critical caveat relates to the size of the economy. High-income countries, the trade share of GDP tends to be small (only around 10%) because their countries are capable of producing goods, their exchange rate and domestic markets are sufficiently large and stable to produce industrial goods requiring economies of scale with large volumes of output. Compared to smaller or lower-income countries trade contributes a much higher share of GDP as they rely more on imports and exports and economies of scale. What happened in Indonesia and other Asian countries in 1990s (1998 to be exact) were the result of overreliance on foreign trade and investment with a low social security net. When Thai baht detached from the US dollar, it set off a series of currency devaluation, including Indonesian rupiah (down 80%). ## 3.3 Macroeconomic risk factors for diseases Useful to think of this in terms of [[social determinants of health]]. SDH includes employment, nutrition, environmental factors and education, ie, household economy. The contribution of macroeconomics to the spread of communicable diseases: 1) overall physical environment in which people live (pollution, sanitation, etc) is determined by income and wealth, 2) movement of people, animals, and goods across international borders, which is associated with increases in global trade, eg, COVID-19 pandemic. Non-communicable diseases: higher income people tend to consume more animal products and increased sedentary behaviour and, as mentioned, lower income is associated with under-nutrition and smoking. Even in some lower income countries, cooking and heating requires burning solid fuels which leads to indoor air pollution. ## 3.4 The influence of health on the economy Communicable disease impact to economy is quite straightforward: just see COVID-19 pandemic and its impact on economic disruption. Noncommunicable disease: increased consumption of goods that are harmful to health, such as tobacco, alcohol, and high-calorie foods. [[Nutrition transition]] means populations in low- and middle-income countries are shifting away from diets high in cereals and complex carbohydrates, to high-calorie, nutrient-poor diets in high fats, sweeteners, and processed foods. # 4. Macroeconomics and the health sector ## 4.1 An overview Macroeconomics affects the health sector in two main ways: 1. Determining the level of income available to be spent on health care nationally, and thus the level of health care expenditure at a national level 2. Through trade in health-related goods and services directly. This includes principally pharmaceuticals and other medical technologies, but also increasingly aspects related to telemedicine, health tourism, foreign investment and health care worker migration. Most countries spend less than 10% of GDP on healthcare — including Indonesia, and this is seen as perhaps the stable upper limit. Countries with highest spending on healthcare (% GDP): USA, Switzerland, Germany, France, Sweden, Japan. OECD 36 average is 8.8% of GDP, while Indonesia only 3.1% of GDP. Other than GDP, another influence on healthcare spending is the inflow of foreign aid. Bilateral or multilateral cooperation that supports the development of another through training or improvement of technologies, other alternatives include financial support via loans or grants: Global Fund to Fight AIDS, Tuberculosis and Malaria, World Bank, Pandemic Fund, GAVI Alliance, PEPFAR, and other development banks such as Asian Development Bank (ADB) ## 4.2 Government revenue and expenditure Easy to collect taxes = import tariffs Hard to collect = consumption taxes, income tax and value-added tax (VAT) ### 4.2.1 Direct and indirect taxes Direct taxes = paid directly to the government or tax authorities and include, for example, tax on income or profits (corporate tax) Indirect taxes = paid to the government indirectly by the suppliers of the goods or services, eg, VAT or duty on fuel ### 4.2.2 Tariffs [[Tariff]] can be defined as a list or system of duties (taxes placed on imports) imposed by the government of an importing country on imported or exported goods. It is a way of protecting domestic industries from overseas competition. Tariffs ranging from 1% from countries within OECD up to around 58% in some low income countries such as Somalia. Tariff revenues for middle income countries having some notable variations, for example 2.4% for Indonesia, 4.9% for India. [[Zettels]] Indonesia, in 2022-07-28 applied tariff rate was averaging 8.1% (2019). There are variations in industries, such as agriculture 8.7% and 8.0% for non-agriculture products. In 2020, Ministry of Finance Regulation 199/2019 to lower the price threshold for import duty exemptions on imported consumer goods (Consigment goods) from $75 to $3. U.S. stakeholders have asserted that Indonesia is applying tariffs in excess of its WTO bound rates for certain categories of information and communications technology (ICT) products. Since at least 2020, Indonesia appears to be applying a 10 percent duty for certain categories of the tariff subheading 8517.62 which includes switching and routing equipment, and a 5 percent duty on computer servers under tariff subheading 8471.50. Stakeholders assert that Indonesia’s tariffs not only impose an unfair financial burden on foreign firms, but they also limit access for Indonesian consumers and firms to critical ICT products needed to support Indonesia’s digital infrastructure growth goals. Source: https://www.trade.gov/country-commercial-guides/indonesia-import-tariffs [[Trade liberalisation]], by definition, reduces the proportion of government income obtained from the (easy to collect) import tariffs, as the revenue collected from trade tariffs are removed or drastically reduced.Theoritically, reducing import tariffs should shift tax bases to domestic taxes, such as income taxes or sales taxes, but in practice this is difficult. Particularly for lower income countries, and nature of the informal nature of their economies, which tend to have large subsistence sectors, such as farming. High-income countries are usually able to recover 100% of lost tariff revenues, middle-income countries recover around 40%-60%, lower income countries only 30%. [[Zettels]] [[Open Question]] But why the practice is difficult? Why recovery capability declines according to country's classification? ### 4.2.3 Non-tariff barriers to trade Quotas = physical restrictions on the overall volume of imports allowed into a country, to give leverage for domestic industry (protection from competition) Local content requirements (TKDN in Indonesia) Technical requirements = testing requirements, health and safety regulations and so forth, certification requirement, marketing standards, labelling, packaging Administrative barriers: obtaining customs clearance, or domestic subsidies to make imported goods less competitive compared with domestically produced goods All this barriers are in place to reduce demand for imported goods as compared with domestically produced goods. [[Zettels]] But, when the government restrict or put barriers to trade and reduce import, it is different from supporting local industry and thus need to ensure both are developed parallel and not restrict [[access to medicines]] to produced goods. ### 4.2.4 [[Exchange rates]] Exchange rates determine the relative cost of imported versus domestically produced healthcare goods and services, such as vaccines and health professionals' (wages). ## 4.3 [[Foreign Direct Investment (FDI)]] For health sector, investment figures do not distinguish between 'for profit' and 'not for profit' intentions, which may have quite different implications for the health sector being invested in. [[Zettels]] [[Job Creation Law (UU Cipta Kerja)]] In Indonesia, there are certain sectors that can have 100% foreign ownership as an incentive to increase FDI, including healthcare (daftar negatif investasi (DNI)): tourism, transportation, ICT, workforce, energy, and healthcare (end-product pharmaceutical industry, accupuncture, and pest control). Previously, 25 sectors have opened Penanaman Modal Dalam Negeri (PMDN) maupun Penanaman Modal Asing (PMA) mulai dari 40%, 60%, dan 97%. Source: https://finance.detik.com/berita-ekonomi-bisnis/d-4308440/daftar-lengkap-bidang-usaha-yang-100-bisa-dikuasai-asing Overall, [[FDI in the health sector is not a very large-scale operation, which limits the size of the associated risks]]. The major risk here are that large initial public investments are often required to attract FDI, leading to a potential diversion of resources from the public sector. It may also lead to a two-tier structure of health care establishments, internal brain drain from public to private sector, and "[[crowding out]]" of poorer patients. However, it may also lead to the upgrading of infrastructure and technologies, a reduction in the burden on public resources, the creation of employment opportunities, raising of standards, and improvements in management, availability and education. [[Zettels]] FDI, if established two-tier structure of health care establishments, will exclude poorer patients in accessing care. That's what we must prevent. ## 4.4 Movement of people [[Medical tourism]] relates to demand for healthcare and is the movement of patients across an international border for the purpose of obtaining medical treatment. Also, health care workers can migrate to other countries to work in another country's health service. # 5. Integrating activity [[Question]] With reference to a country you have lived in or are familiar with, take a few moments to consider a high burden illness in that country and try to identify how economics might drive the risk factors which contribute to that burden (availability and affordability of unhealthy goods, environmental factors, social determinants). Suppose you could advise policymakers with regard to addressing this burden, would you prioritise: - Health interventions or investments to address the illness burden (vaccinations, expansion of localised health services, etc) - Wider macroeconomic interventions (which target the risk factors and affect health indirectly): tobacco tax and sugar tax to increase tax revenue, but like Thailand, some of them must be funneled to health promotion and prevention. Write a brief paragraph which outlines your considerations and justifies your recommendation. # 6. Summary This session has provided an introduction to core economic theory and concepts which are of relevance for the study of global health. This background knowledge will facilitate your analysis of the topics and themes presented in the rest of this module. The session has defined the field of macroeconomics and explored the key areas for interface between macroeconomics and health, specifically: the role of macroeconomics on income and wealth; macroeconomic risk factors for disease; and macroeconomics and the health sector. In addition, it highlighted how poor population health is not only influenced by macroeconomic factors, but can undermine economic growth and curtail development. Despite various crises and setbacks which the global economy has faced, economic interdependence has and will continue to grow. Increasingly, the health and health system of a country are affected by events beyond its borders and the effective control of its government. The deep interconnectedness between states in the context of globalisation means that empirical research and policy advice cannot be viewed solely from a national perspective. The challenge for students and practitioners of global health policy is to understand the implications of these interdependencies in order to better evaluate how to strengthen health systems and, ultimately, population health. # 7. References [[Can trade agreements stop currency manipulation?]] ## 7.1 Essential readings [[The Health and Wealth of Nations]] [[Trade and social determinants of health]] ## 7.2 Recommended readings [[Look after the pennies]] [[How will the financial crisis affect health?]] [[Trade in health-related services]]