Composition of Public Expenditure on Health and Economic Growth: A Cointegration Analysis and Causality Testing

Observing that the literature has focused only on the linkage between economic growth and public expenditure on health, the present study aims at deriving conditions under which the change in the composition of public expenditure on health could lead to higher steady-state growth rate in the economy. The study aims at deriving a linkage between different components—capital and revenue—of public expenditure on health and economic growth in the Indian context, covering the period from 1990-91 to 2007-08. In pursuit of this objective, an econometric analysis using the tests of panel cointegration and Granger causality was conducted by using two types of datasets, viz. (1) Time series data on all-India; and (2) Panel data on 16 major Indian states. The results of all-India-level analysis suggested that there is a causal effect of Gross Domestic Product (GDP) on Revenue Expenditure (RE) on health both in the short run as well as in the long run. However, there was no effect of RE on health on GDP either in the short run or in the long run. Also it was found that there was no linkage between GDP and Capital Expenditure (CE) on health. However, the results of panel data analysis suggested that Gross State Domestic Product (GSDP) causes RE both in the short run and long run, whereas RE on health causes GSDP only in the long run. Similar to the results of all-India level, CE and GSDP were found to have no significant linkage in the panel context as well.