WHO has recently released their 2015 Global Status Report on Road Safety (2015 WHO GSRRS). This is the third in a series of reports produced by WHO every three years that provide an assessment of global progress towards road safety. Over coming days, I hope to share my thoughts on the report as I work my way through it. (Click here to see all posts on the subject)
I think it’s time for all of us who work in road safety to speak clearly and truthfully about the costs of traffic crashes globally. Although I’ve been prompted by the 2015 WHO GSRRS to write this blog post, the issue is much more pervasive across the road safety field. Policy reports (such as the 2015 WHO GSRRS and numerous others) are likely overstating the impact of crashes on the economy. I understand that this may be a good faith attempt at trying to desperately bring more attention to road safety. However, if we lie about such statistics now we will stifle our ability to do serious work in the future.
Consider the following quotes from the 2015 WHO GSRRS:
- “Road traffic injuries … cost governments approximately 3% of GDP.” Page VII, Foreword written by the Director General of WHO, Margaret Chan.
- “… low- and middle- income countries lose approximately 3% of GDP as a result of road traffic crashes”, Page IX, Executive Summary.
- “Road traffic deaths and injuries in low- and middle- income countries are estimated to cause economic losses of up to 5% of GDP. ” Sidebar on Pg. XI.
- Pages 77 to 270 provide a one-page summary of crash statistics for each country. This includes each country’s “Estimated GDP lost due to road traffic crashes:” (As an aside, the numbers reported are difficult to justify. For instance, Jamaica reports a GDP loss of 0.2% and Bulgaria 2.0%, even though Jamaica has a higher road traffic death rate than Bulgaria.)
The claim that low- and middle- income countries lose 3% of GDP due to road traffic injuries is clearly intended to mean that a country that has a GDP of US$100 billion, would have had a GDP of US$103 billion if it didn’t have any road traffic injuries. However, that is a serious misrepresentation of the research from which such estimates are derived. There are lots of research studies that have estimated the economic burden of road traffic injuries but there isn’t a single study published yet that aims to measure the macroeconomic impact of road traffic injuries on a country’s economy (and its GDP loss). Let me explain the difference.
If not GDP loss, what do injury costing studies actually measure?
It is important to understand what studies of the economic burden of injuries aim to measure. Broadly speaking, most health costing studies start by estimating the value of a statistical life that is lost (or, when considering non-fatal disabilities, the value of a statistical life-year lost). If we have a way to put a monetary value on a unit of health loss, and we already know the total amount of health loss in a society due to injuries, then we can simply multiply the two to get the total monetary value of the health lost due to injuries. This is the main logic of injury costing studies. Note that this has little to do with GDP, which is the net monetary value of all goods and services produced by the society.
The difference becomes clearer once we understand how economists estimate the monetary value of a unit of health loss? There are two ways that are commonly used:
1. Conducting studies to reveal how much people are willing to pay to avoid health risks (i.e. the Willingness-to-pay approach): For instance, a survey may be conducted that asks people how much they would be willing to pay to reduce their risk of injuries by a small amount. From this, the economic value that people place on a death or disability can be estimated. Such methods are controversial and economists have debated extensively about how to measure what people are willing to pay to avoid illness and injury. Nevertheless, everybody agrees that these willingness-to-pay estimates are not intended to measure the effect of injuries on a society’s economic production — i.e. these studies do not measure the impact of injuries on GDP. Much of what people are willing to pay to avoid a death likely has to do with the emotional pain that they suffer when they lose a loved one, which isn’t related with how that person affected the economy. GDP loss is the amount of market production that did not happen because of traffic crashes. Pain and grief matter little from the perspective of the economy.
2. Estimating the tangible monetary impacts of ill health (called the Human Capital approach or Cost-of-Illness approach): This method aims to estimate the direct and indirect costs incurred due to road traffic injuries. Examples of direct costs include medical treatment (ambulance and hospital costs) and funeral costs. Examples of indirect costs include the income that is lost due to the loss of wages when a person cannot return to work because of disability or death. There are many unresolved measurement questions with this method as well (e.g. how do we handle non-market labor such as housework? ). However, again, one thing is clear — the method does not measure the macroeconomic impact of injuries on the economy and does not measure GDP loss. To see why, consider the following:
— Labor losses: These losses are usually a large value, typically accounting for 75-80% of the total costs estimated using this method. The reason these values are large is because they are computed by assuming that when a person dies the total of all their future earnings are lost. However, this is a dramatic overestimate of the loss borne by the economy. In most countries, there is a pool of unemployed people who will usually fill the opening created by a person who can no longer work. Thus, as far as the economy (and the GDP) is concerned, the main loss involved could be only the cost of retraining new hires. The fact that it is a different person who is earning these wages now doesn’t affect the GDP.
— Medical costs: The cost of providing medical care for injuries are the main direct costs in the Human Capital method, typically accounting for 15-20% of the total costs using this method. However, these costs (and all other direct costs) are actually part of the formal economy — they contribute to the GDP. As far as the economy is concerned, doctors and hospitals produce value, and this is included in the GDP as a positive contribution. One person’s medical payments go towards another’s salary.
So, how should we measure the true impact of traffic injuries on GDP?
If we must measure GDP loss, we need other tools. For instance, one approach would be to develop a macroeconomic model that relates the incidence of injuries with the the loss of labor supply (due to disability and death of workers) and the loss of capital (such as due to health care expenditures that may otherwise have gone towards savings or investments) with economic production. WHO has a tool for this purpose called Projecting the Economic Costs of Ill-Health (EPIC) that has been applied previously to assess the global macroeconomic impact of non-communicable diseases. However, to my knowledge, this tool or a similar methodology has never been applied to road traffic injuries.
The problems that I’m highlighting here are not new. In fact, most of these issues are discussed at length in the 2009 WHO Guide to Identifying the Economic Consequences of Disease and Injury, which was produced by WHO after consultation meetings with the best health economists from across the globe.
In closing I should add that although claims about GDP losses are made commonly in policy reports and presentations, they are rarely made in the formal research literature or in policy reports that are led by economists. To give a few notable examples:
- The landmark 2006 study by Corso, Finkelstein, Miller and colleagues estimated the costs of injuries in the US. Their paper presented medical costs and productivity losses. They did not mention impact of injuries on the GDP of the US.
- New Zealand’s costs of injury report estimates costs using willingness-to-pay methods but they never present this as impact on the national GDP.
- Bishai and Bachani’s chapter titled Injury Costing Frameworks (paywall) reviews methods for estimating the economic burden of injuries but then explains that to measure impact on the economy, we would need to develop general equilibrium methods for macroeconomic analysis of the effects of road traffic injuries.
There are numerous research publications where GDP is explicitly mentioned but this is done to enable cross-country comparisons or to put a large dollar figure into perspective. Thus:
- The 2008 IRAP report by McMahon and Dahdah provided a simple algebraic equation to estimate the net economic burden of injuries in settings where detailed data about injury costs are not readily available. Their equation uses GDP as an index for estimating the value of (statistical) deaths and injuries in any country based on empirical evidence that suggests a relationship between national income and willingness-to-pay estimates. However, they do not claim that their equation provides an estimate of the amount of GDP that is lost.
- A 2011 paper by Lim et al. that reported the economic burden of injuries in South Korea included the following sentence after their cost estimate, “as a yardstick, this represents 2.7% and 4.9% of Korea’s GDP”. Note that they are using the GDP to provide perspective to their economic burden estimate — they are not claiming that they have measured the amount of GDP lost in South Korea to injuries.
- A 2011 paper by Perez Nunez et al. (paywall) reports the economic burden of injuries in a state in Mexico and then adds “This figure equals 1.3% of the GDP of the state.” Again, like Lim et al., they are only using GDP as a yardstick.
- In my own work (such as this report on the cost of road injuries in Latin America), I estimate the net economic burden of road traffic crashes in four countries in Latin America and then present these figures as “equivalent to X% of GDP” to allow a comparison across countries.
To summarize, we do not know how much road traffic injuries hurt the economy nor do we know how much GDP is lost. I suspect that the macroeconomic impact would likely be much smaller than the 3 to 5% figure provided in the 2015 WHO-GSRRS but we won’t really know until somebody does the correct analysis. Personally, I believe that we do not need such analysis to justify our safety investments because the immense loss of health due to traffic injuries that has been documented extensively is already reason enough.