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

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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.

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Notes

  1. Under the HNC hypothesis non individual causality running from x to y occurs. In the HC and HEC cases, there is a causality relationship for each individual of the sample. Particularly, in the HC case, the same regression model is valid with identical parameters for all individuals, whereas this is not the case for the HEC hypothesis. Finally, causality relationship under HENC is heterogeneous because the variable x causes y only for a subsample of N − N 1 units (for further details see Dumitrescu and Hurlin 2012).

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Authors and Affiliations

  1. Universiti, Tekonologi, PETRONS (UTP) Bandar Seri Iskandar, 31750, Tronoh, Perak, Malaysia

    Habib Nawaz Khan

  2. Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad, Pakistan

    Muhammad Arshad Khan

  3. Fundamantala and Applied Sciences Department (FASD), Universiti Tekonolgi PETRONAS (UTP), Tronoh, Malaysia

    Radzuan B. Razli & Afz’a Binti Sahfie

  4. IER, University of Science and Technology, Bannu, KPK, Pakistan

    Gulap Shehzada

  5. Higher Education Division, Central Queens Lands(CQ) University, Australia University Drive, Bundaberg, 4670, Australia

    Katrina Lane Krebs

  6. Department of Mathematics and Statistics, Hakim Sabzevar University, Sabzevar, Islamic Republic of Iran

    Nasrin Sarvghad

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  1. Habib Nawaz Khan
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Khan, H.N., Khan, M.A., Razli, R.B. et al. Health Care Expenditure and Economic Growth in SAARC Countries (1995–2012): A Panel Causality Analysis. Applied Research Quality Life 11, 639–661 (2016). https://doi.org/10.1007/s11482-015-9385-z

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