Medical Tourism in Developing Countries

Plastic Surgery is Not Peanuts ● 31sectors. They do the same when they consume health services. However, asdiscussed in chapter 4, in the medical sector there is less foreign investmentthan in nonmedical tourism, as most investment tends to come fromdomestic sources.In turn, foreign investment in the tourist industry enables furthergrowth of service industries, thus forming a reinforcing cause and effectcycle. Investment in these services (such as businesses services, telecommunications,hotels, and restaurants) is large, as they are the greatest recipientsof foreign multilateral investment. The World Bank noted that these servicesare exactly the ones that receive the greatest amount of foreign directinvestment, 44 thus fueling the growth cycle.As with international trade, foreign investment represents both an inflowof foreign currency as well as an inflow of investment capital that translatesinto tangible facilities, tools, buildings, equipment, and the like. The economicactivity generated by those objects of investment, as well as theirconstruction and management, bring additional foreign currency into thecountry, further stimulating its economy.The Accumulation of Physical and Human CapitalPhysical capital accumulation occurs when some portion of present incomeis saved and invested in order to augment future output and income.It includes all new investments in land, machinery, and physical equipment.While investment in these is directly related to output, investment in infrastructure(such as roads, sanitation, and communications) indirectly facilitateseconomic activity. Since the early 1900s, economists have focused onthe important role of such capital accumulation for economic growth.Solow’s neoclassical growth model of 1956 claimed that growth depends onthe accumulation of physical capital. The Harrod-Domar model of the1950s formally linked economic growth to the accumulation of capital, andsubsequent scholarly research has expanded and strengthened this link. 45According to the original model, the savings rate is crucial since it is positivelyrelated to capital accumulation, which in turn is positively related tooutput (indeed, evidence from countries with high savings rates, such asJapan, show unequivocal benefit from this source of capital). Public savingsand debt compensate for a deficiency of private savings. If private andpublic domestic savings are still inadequate for the desired levels of capitalaccumulation, then international sources of capital fill the gap (such asmultilateral and bilateral flows of capital).Within the development literature, whether savings and investment is anengine of growth in developing countries has been discussed for decades,