Relationship between Health care and Economic Growth: A Causality analysis using Co-integration Test

This objective is to examine the relationship between healthcare expenditure and economic growth based on time series data from 1992 to 2020. They are GDP (Y) as a dependent variable, Public Health Expenditure (X1) and Private Health Expenditure (X2) as independent variables. The data of these three variables from 1992 to 2020 are collected from the World Bank database. The data are analyzed to determine the causality between Public Health Expenditure and Economic Growth in India as well as private health expenditure and Economic Growth (GDP) of India. The analysis is based on the results of the Johansen Co-integration test. There is a strong positive long-run relationship between India’s health expenditure and GDP. Furthermore, the Granger causality test detected bi-directional causality from GDP to health expenditure. The Johansen test for co-integration is applied to find the relationship between GDP (Y) as a dependent variable, Public Health Expenditure (X1) and Private Health Expenditure (X2). Since they are integrated in the same order, this ensures the condition to apply Johansen co-integration. From the study, it is found that in our country, economic growth leads to higher public health expenditure as well as private health expenditure. Public health expenditure and private health expenditure are integrated into different order. Hence, these two variables will not have a co-integration relationship. The result of co-integration between per capita domestic income and per capita planned expenditure rejects the hypothesis of the existence of a long-run relationship between these two. Regarding economic growth to public health expenditure and private health expenditure, in both these cases, the probabilistic values are less than 5% in the case of all four lags, as the result, showing the significant value leads to rejecting the null hypothesis. So there is a causality relationship between economic growth to both public and private health expenditure. Finally, it can be said that in our country, economic growth leads to higher public health expenditure as well as private health expenditure. On long-run causality, there should be some policies implication regarding economic growth leading to more public health expenditure for the sustainable and strong health infrastructure in India. Again in the short-run bidirectional causality between private and public health expenditure and economic growth, the result implies more to more investment in the health sector can lead to economic growth in the long run. Thus we may conclude that the growth of planned health expenditure overtime the period may have occurred due to other reasons than to increase in per capita income of the country. The study found that there is no short-run causality running from public health expenditure to GDP. There is no long-run equilibrium relationship between per capita planned expenditure and per capita domestic income in the case of India. This implies that an increase in health expenditure since 1980 has no relation with an increase in income. This means that India represents an example of a developing economy where the size of health expenditure expands in the process of economic transformation.