The Dynamics of Health and Its Determinants among Older Adults

This paper examines the determinants of chronic health conditions and explains their persistence, using a panel data set from the Indonesian Family Life Survey (IFLS). I incorporate dynamics into a health demand function, finding strong correlations between lagged and current health measures when nothing else is controlled. This could represent the influence of lagged health or fixed unobserved factors such as genetic endowments and childhood health. To disentangle these, I estimate the influence of lagged health by using first-difference two-step generalized method of moments (FD-GMM), where the first-differencing removes fixed unobserved factors and keeps only lagged health. I found that it is this fixed effect, representing both genetic endowments and childhood health, that is most important in explaining later life chronic conditions. The impact of past health conditioning on the fixed effect, captured by the coefficients on lagged health measures, is weak, with estimated coefficients relatively close to zero. These results are robust to potential measurement errors in health and to sample attrition. Socio-economic status also has very little influence on current health, again conditioned on the fixed effect and on the influence of lagged health.