Health Care Expenditure and Economic Growth in SAARC Countries (1995–2012): A Panel Causality Analysis

Abstract

The aim of this paper is to investigate the relationship between health care expenditure (HCE) and economic growth and to the causality between HCE and economic growth in the selected South Asian Association for Regional Cooperation (SAARC) countries by employing the Panel cointegration and panel causality analysis over the period 1995–2012. Per capita income, labor force, literacy rate, and elderly population of age 65 and above are used an independent variables, as these variables are considered as main indicator of human and physical capital. For examining the time series properties of the data and long run relationships between HCE and economic growth, the panel unit root and panel cointegration tests are employed. The panel Dynamic Ordinary Least Squares (DOLS) method is used to estimate long run parameters, whereas the Seemingly Unrelated Regression (SUR) method is employed to estimate the short run parameters. For the panel causality among HCE and per capita GDP, a new technique developed by Dumitrescu and Hurlin (2012) is used. The results reveal that income elasticity of HCE is less than unity in the long run as well as in the short run. Furthermore, there is an evidence of unidirectional causality running from per capita GDP to HCE in the South Asian countries in the short run. Two-way causation between per capita GDP, labor force, literacy rate, and elderly population of age 65 and above is also observed. We also found two-way causality between labor force, elderly population of age 65 and health care expenditure.