Abstract
To effectively evaluate the elasticity of demand for public health expenditure in South Africa, this study utilised a demand function approach to specify the functional relationship between public health expenditure, real GDP and other non-income explanatory variables. The study uses a double-log linear regression model to capture the elasticity of public health expenditure in respect of model explanatory variables. Empirical results suggest that public health expenditure, GDP, life expectancy and medical inflation were cointegrated over the period of the analysis. The findings also confirmed that the coefficients of these variables were statistically significant and of the expected signs. Specifically, the results reaffirm the importance of GDP and life expectancy as key determinants of health expenditure, both with an elasticity value above unity. The importance of medical inflation was also confirmed although its effect appears small.
Highlights
There is a widespread belief that health care costs will increase significantly over the decade as people live longer and are expecting to be given unconditional access public health care
Despite the rising allocations and progress made with the delivery of public health services, the health system continues to be challenged by the large burden of disease, not being adequately prevented (National Treasury, 2009)
Despite the rising allocations and progress made with the delivery of public health services, the South African health care system continues to be challenged by the large burden of disease
Summary
There is a widespread belief that health care costs will increase significantly over the decade as people live longer and are expecting to be given unconditional access public health care. Econometric modelling of health expenditure has been among the most commonly used methods of regression based analysis in public health research This approach has been used in studies by Hitiris and Posnett (1992), Hansen and King (1996), Milne and Molana (1991) and Newhouse (1977) to measure the response of health budgets to changes in non-income explanatory variables. Similar to other regression based analyses that have explained the variation in public health expenditure across countries [see Milne and Molana (1991), Hitiris and Posnett (1992), Hansen and King (1996), Gerdtham et al (1992), Newhouse (1977)], this study will estimate and evaluate the functional relationship between public health expenditure, GDP and other non-income explanatory variables. The results presented in the table above indicate a cointegrating regression, suggesting the existence of a long-run relationship between PHE, GDP, LeX, and Medic_Infl in South Africa.
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