Health Care Quality and Finite Changes of Trade Policy

Date01 February 2015
Published date01 February 2015
Subject MatterArticles
/tmp/tmp-174dOp38Oz7Las/input Article
Health Care Quality
Foreign Trade Review
50(1) 21–30
and Finite Changes of
©2015 Indian Institute of
Foreign Trade
Trade Policy: A General
SAGE Publications
Equilibrium Analysis
DOI: 10.1177/0015732514558139
Tonmoy Chatterjee1
Kausik Gupta2
This article attempts to relate the issues of health care quality with international
trade. For this purpose we have mixed both flavours of Heckscher-Ohlin-Samuelson
and Neo-Heckscher-Ohlin frameworks and have developed a hybrid type of trade
theoretic general equilibrium model. In such a set-up we have shown that a move-
ment from a regime of international health capital immobility to a regime of inter-
national health capital mobility may lead to an expansion of the size of the health
quality exporting sector and at the same time such type of regime switch may lead
to a contraction of quality of this health care sector. Moreover, from the hybrid
model we have illustrated that the sizes of health care and composite export sec-
tor expand, whereas import sector of our small open economy contracts.
JEL: I10, I15, F11, F21
Health care quality, international trade, international health capital mobility,
general equilibrium
Trade in health services have put on the shelves an increase in importance and
interest among policymakers and economists those who are engaged with health
trade related issues. According to General Agreement on Trade in Services (GATS)
1 Department of Economics, Sidho-Kanho-Birsha University, Purulia, West Bengal, India.
2 West Bengal State University, Kolkata, West Bengal, India.
Corresponding author:
Tonmoy Chatterjee, Department of Economics, Sidho-Kanho-Birsha University, Purulia 723101,
West Bengal, India.

Foreign Trade Review 50(1)
there are four modes through which trade in health services will occur. In this
article we want to emphasize on mode 2 and mode 3 among these four modes.1
Mode 2 implies consumption of health services abroad. In other words it implies
a movement of consumers to the country that supply high quality health services
for treatment. This mode is getting special importance in the globalized world due
to the fact that exports of health services (from the producers of south) with high
quality is always preferred by the importers (consumers of north) of these prod-
ucts. For instance, patients of north countries (the USA, the UK etc.) and south
nations (Bangladesh, Nepal, Bhutan, etc.) come to India for surgery, neurology,
cardiology etc. There is enough evidence that foreign patients come here to get
traditional treatments like Ayurvedic and Unani also. A question may arise in this
context that why patients of north prefer to go to south for their treatment in spite
of the fact that it has been historically observed that south has always produced
low quality products. It can then be inferred that low price may be the only reason
for such type of high demand for exports of health services from south. However,
it is to be noted that low price is a good indicator of bad quality products and
patients of north will not compromise with low quality health services. So there
exists a straight forward contradiction between the evidence and the earlier argu-
ments. The only way out to get rid from that contradiction is that if the south can
supply better quality health services at a relatively lower price compared to the
northern counterpart. Again it is to be noted that mode 3, that is, commercial pres-
ence in health sector,2 may improvise the pattern of trade in health services through
mode 2 with the help of foreign capital mobility. Hence historically observed facts
(production with low quality) will be eliminated due to trade liberalization and
south will produce and export high quality health services with the implicit effects
of foreign capital mobility through skill formation and technology transfer and it
will persist with their spillover effects.3
Although there exists quite a few empirical works related to health care and
FDI,4 even at the theoretical level there are few papers which relate health care
quality with international trade5 but there exists almost no work that relates
trade in health service quality with mode 3 of health trade in a general equilib-
rium trade model. In this article we would like to fill up this lacuna of trade
literature. In this study we want to show that how quality of health care in a
small open economy affects rest of the economy (export [other that health sec-
tor] and import sectors of the small open economy). As we would like to focus
on integrating health quality exporting sector along with rest of the economy in
terms of a model based on general equilibrium structure it is expected that such
a model will provide more informative as well as generalized results compared
to partial equilibrium analysis. Moreover, perhaps this is the first attempt in
trade literature in which both the aspects of health care quality and quantity
have been captured within a HOS type of general equilibrium framework.6 The
interesting result of this study is that quality and quantity of our health export-
ing sector7 will move in opposite directions, that is, from such type of hypotheti-
cal framework we have found a trade-off between health care quality and
quantity of health care due to finite changes in foreign health capital.8

Chatterjee and Gupta
The article is organized in the following manner. Section ‘The Model’ consid-
ers the model. It has two subsections. The subsection ‘International Health Capital
Immobility’ considers the aspect of international health capital immobility and the
subsection ‘International Health Capital Mobility’ considers the issue of interna-

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