Climate, health, and values: When climate-driven health spending crowds in innovation and human capital

Building on Roos (2017), who endogenizes growth via evolving societal values, and evidence that climate burdens will swell health budgets (Ramírez Sánchez et al., 2024 for Mexico), this project models and empirically tests a “resilience-led growth” channel. The idea is that climate-driven disease burdens shift societal preferences toward resilience and health capacity, increasing health R&D, raising human capital, and generating positive externalities for productivity. It contrasts high-capacity cases (e.g., Mexico) with fragile states (e.g., Somalia) where the same shock may depress growth. Unlike typical treatments that view health as a cost in climate damages, this work explicitly allows for “crowding-in” innovation via value shifts. The project structures a two-sector growth model (health and non-health) with knowledge spillovers; values determine budget shares endogenously in response to climate-health shocks. Empirically, it instruments climate-health shocks using exogenous heat/humidity vectors and vector-borne disease suitability, testing whether rising health shares predict subsequent patenting, TFP, and wage growth. This approach identifies policy complements such as health R&D credits, workforce training, and insurance design that tilt climate-health spending from passive cost to active growth driver. The impact is a rewrite of a core assumption in IAMs and macro assessments by treating part of climate health spending as investment with spillovers, offering nuanced policy prescriptions for middle-income countries facing rising health burdens.

References:

1. Climate Change and its Economic Impacts in Mexico. Ramírez Sánchez Hermes Ulises, Badillo-Camacho Jessica, García-Guadalupe Mario E., Ulloa-Godínez Héctor H. (2024). International Journal of Environment and Climate Change.
2. Endogenous Economic Growth, Climate Change and Societal Values: A Conceptual Model. Michael W. M. Roos (2017). Computational Economics.