Health Care Expenditure and GDP: An African Perspective

Abstract

This paper sheds light on the magnitude of income elasticity of health care expenditure in Africa. The existing literature has to date focused on developed countries due to scarcity of health expenditure data in developing countries. We here exploit panel data techniques that combine time-series and cross-section data whilst also enabling a substantial increase in testing power. This study constitutes the first attempt to explore the income elasticity of health care expenditure for 28 African countries in a panel dimension over the decade 1991 - 2000. In addition to aggregate health expenditure, we model public and private health expenditures separately. Public health expenditure is found to be a luxury good while private health expenditure a necessity. This is not too surprising in the context of Africa, where the public sector has to strive hard to provide basic health care to the poor majority but a rich minority can easily afford hi-tech private health care. Furthermore the income elasticity of public health expenditure is found to be pro-cyclical while that of private health expenditure is counter-cyclical, thereby reinforcing our previous findings.