Determining the Income Elasticity of Health Expenditure in Sub Sharan Africa

Abstract

The present study adds to the existing literature by grouping countries in sub-Saharan Africa into two broad health systems (public and private). A country's health system is classified as predominantly public if the average share of public health expenditure for the period under study is greater than the average share of private health expenditure; it is classified as predominantly private if the reverse is the case. The aim is to derive the income elasticities of health expenditure in other to unravel countries in the sub-region where health provision is likely to be a necessary good. To capture the dynamic nature of the relationship, the study's methodology relies on several econometric procedures (pooled mean group, mean group, and common correlated error mean group estimators). Other variables included in the model are official development assistance, the price level, population above 65 and migrant remittances. The unit root test performed showed that most of the variables in the study are not stationary at level; however, they are cointegrated in the long run, justifying the choice of the estimation techniques. The empirical results reveal that the short-run income elasticity of health expenditure in sub-Saharan Africa is 0.36 and in the long run, the value becomes 1.18 with a speed of adjustment of 0.41. This suggests that 41% of the short-run disequilibrium is dissipated in the current period. Other variables that were included in the model as controls were not statistically significant. In the reduced model that has only income as a regressor, the short-run and long-run income elasticities in the overall sample continue to remain significant, however, the income elasticity in the predominantly public health system is greater than the elasticity in the predominantly private health system. This suggests that health is more of a development issue in a predominantly private health system in sub–Saharan Africa. An implication of the present study is that citizens of sub-Saharan African countries that rely more on private financing of health expenditure are likely to be exposed to catastrophic health financing. Hence, policymakers can avert this by encouraging more public financing of healthcare provisions.