The determinants of healthcare expenditure in African countries : a panel ARDL Model approach

Abstract

Health care expenditure in the African region like in many other countries has been closely linked to the financial health of the economy. This relationship draws a link between economic growth and health care expenditure, which is what, is being explored in this paper. This paper investigates the determinants of health care expenditure of different African countries. The data used selected 20 African countries that fall in the sub-Saharan sector. A panel auto-regressive distributed lag (ARDL) model was adopted in the study to assist in understanding the dynamics of health care expenditure. Annual data for 20 sub-Saharan African countries was used ranging from the year 2000 to 2016. Explanatory variables used in the investigation are gross domestic expenditure, population, mortality rate, inflation and income per capita. The study found evidence of cointegration among the variables, with the aid of the Wald test and the Pesaran critical value. The long run estimates found that population had a positive and significant (0.0001) relationship with health care expenditure. The mortality rate also had a positive and significant (0.0016) relationship with health care expenditure. Interestingly the main independent variable, gross domestic product which is a proxy for growth was found to have a positive yet insignificant (0.6300) relationship with health care expenditure. This was used as a proxy as it sets out the growth structure of many variables within the economy. Another gauge for price sensitivity which is inflate rate also had a positive yet insignificant (0.2345) with health care expenditure. Lastly gross national income was found to have a negative and insignificant (0.0643) relationship with health care expenditure. This former variable would have been an index of the affordability of health care for households. From the results a way forward, would be for government to intervene in the population changes within the economy. A law that stipulates the number of children every family can have, this decreases the dependency on government and decreases poverty in the already struggling families. Although economic growth shows to be insignificant, the positive relationship could suggest that by stimulating the economy, the people are left off better and having increased access to resources so as to better their general living conditions. The same case could be argued for a negative and insignificant relationship of gross national income, the higher the cost of health care expenditure and the more it takes away from household income. By subsidizing small to medium income earners, there can be pressure released from the expenditure cost of health care in many households.