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Published: 2020-09-25


Asisst. Prof. Dr., Kahramanmaras Sütcü Imam University
Kahramanmaraş Sütçü İmam University
Health Expenditure Economic Growth Panel Cointegration Analysis


The concept of human capital became increasingly more critical among the economic growth models with the development of endogenous growth theories. Although the basic premise of human capital in education, health levels are also among the determinants that nurture and contribute to the development of human capital. Significantly, the existence of a socioeconomically developed social structure is possible with healthy individuals. In this regard, the provision of health services to meet the needs of society is related to the level of resources allocated to health services. It is expected that resources allocated sufficiently to health services will contribute positively to the increase in productivity in business life and thus to economic growth.
When the literature on the current panel studies that discuss the relationship between healthcare expenditures and economic growth is reviewed, it is observed that study periods, variables and methods that are used differ from one study to another. For example, in their study, Dreger and Reimers (2005) found a long-run relation between healthcare expenditures and economic growth for the 21 OECD countries from 1975 to 2001. Mehrara et al. (2012) found a negative relation between healthcare expenditures and economic growth for the 13 MENA countries for the period of 1995-2005. Badri and Badri (2016) study indicates a positive effect of healthcare expenditures on economic growth for the 24 OECD countries for the period of 2006-2013. Agir and Tiras (2018) found a two-way causality between healthcare expenditures and economic growth for a list of 173 countries for the period of 1995-2014. As seen in the examples, the current panel studies that discuss the relationship between healthcare expenditures and economic growth do not yield a conclusion that is valid universally. This study contributes to the literature by employing new panel data analysis techniques even though many studies discuss the relationship between healthcare expenditures and economic growth.
This study investigates the effect of healthcare expenditures on economic growth for the selected 7 OECD countries (Australia, Canada, Finland, Germany, Turkey, UK and USA), considering the availability of data. In this study, the empirical relation between healthcare expenditures and economic growth was analyzed by the current techniques in the panel data literature in light of the data obtained from the World Bank and OECD. Gauss 19 and Stata 14.2 econometric package programs were used for forecasts.
In the economic growth and healthcare expenditure model, the homogeneity of the coefficient of the independent variable is tested by slope homogeneity test, developed by Pesaran and Yamagata (2008). To determine the cross-section dependency in the model, Breusch and Pagan (1980) Lagrange Multiplier Test, CD and CDLM tests (Pesaran (2004)), and LMadj test, developed by Pesaran et al. (2008) were used. After these analyses, PANICCA test which is one of the 2nd generation panel unit root tests that was developed by Reese &Westerlund (2016), based on standard factor modelling, and considers cross-section dependency was implemented. The LM test that was developed by Westerlund and Edgerton (2007) was used to investigate whether there is a long-run relationship between health and economic growth. Augmented Mean Group Estimator that was developed by Eberhardt and Teal (2010) was used to analyze long-run coefficients.
The findings in this study support the internal growth models and show that a 1% increase in healthcare expenditures causes a 0.3% increase in economic growth. According to the results based on each country, the expenditures on health services in Australia, Canada, Turkey, UK and USA increases economic growth. These results support the studies on this topic in the literature.

In the light of the results, it should be emphasized that the effect of healthcare expenditures on economic growth, for sustainable growth performance, does not only depend on financial resources allocated to healthcare services but also healthcare policies that are chosen. In this regard, the strength of the causality relation between healthcare expenditures and economic growth varies according to health systems, healthcare infrastructures and social structures of countries. To be able to increase the effect of healthcare expenditures on growth, healthcare policies must be improved. Also, the policies that support justice should be adapted in the use of healthcare services; all segments of society should be able to benefit from healthcare services by making quality healthcare services available even to the poor.


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