Health expenditure and growth dynamics in the SADC region: evidence from non-stationary panel data with cross section dependence and unobserved heterogeneity

Abstract

This paper investigates the long run relationship between health care expenditure and economic growth, using panel data for 14 Southern African Development Community (SADC) member countries over the period 1995–2012. The non-stationarity and cointegration properties between health expenditure per capita and GDP per capita were examined, controlling for cross section dependence and heterogeneity between countries. Our results suggest that health expenditure and GDP per capita are non-stationary and cointegrated. These findings seem to confirm the notion that health expenditure is non-discretionary— health is a necessary good—in the SADC region. The estimated income elasticity is below unity but higher than what was obtained for the OECD regional grouping. The policy implication of our result is that adequate health care service provision should be a key objective of governmental intervention in the SADC region.