Nexus between Public Health Expenditure and Income: Empirical Evidence from Indian States

Abstract

Using the public (government) health expenditure data of sixteen states in India from 1980 to 2013, the paper examines the long-run relationship between an increase in public health expenditure and income. We use real GSDP and real per capita GSDP as proxy for income. We apply Westerlund (2007) error correction based cointegration test for estimating the long-run relationship and panel dynamic OLS (DOLS) method for estimating the long-run coefficient of health expenditure. The empirical result shows that public health expenditure and income is cointegrated in the long-run. There is a positive and significant impact of income on growth of public health expenditure whereas the elasticity of public health expenditure is less than one in the long-run. It has also been found that there is a bidirectional causality between income and public health expenditure in the short-run while being unidirectional in the long-run. These research findings would serve as effective policy instruments aiming at achieving universal health coverage by generating more additional resources for health sector and minimizing the state level disparity in the growth of public health expenditure in India.

Keywords: Public Health Expenditure, Indian States, Panel Cointegration, Income

JEL Classification: H51, C22, E01