Economic Growth and Human Capital Accumulation across Countries: Evidence from WAEMU Region

Abstract

Development policies often focus on health as human capital and require increased health expenditure in developing countries. This paper analyses the extent to which health expenditure is explained by growth in the West African Economic Monetary Union (WAEMU) zone for the period of 2000–2015. Integrated economies were assumed where an increase in gross domestic product per capita (named income) in one country leads to a change in fiscal revenues and hence public spending in that country (direct effect) as well as neighbouring countries (indirect effect). Spatial econometric models were used to test for the existence and estimate the magnitude of spatial externalities. The panel causality results highlight externalities at the WAEMU regional level. Applying the Hausman test, Akaike information criterion, and Wald test to the data permits estimation of a dynamic spatial Durbin model with individual and time fixed effects. Decomposing the results of the model into both short- and long-term direct and indirect (spillover) effects shows that only the short-term effects were significant. The income elasticity of health spending was equal to 1 for the direct effect of economic growth in WAEMU countries. Therefore, health is a necessity at the country level in the WAEMU zone. Income elasticity was greater than 1 for growth spillover effects. Health is a luxury at the regional level. These findings underscore the need for more involvement of national governments in the health sector to redistribute healthcare resources. In addition, health and growth policies must be coordinated in WAEMU countries.