Variation in Health Expenditures : Is it Just Income or Other Factors; Empirical Investigation Using a Panel of Indian States

The primary query of this paper centres on the role played by income in determining the extent of fund allocated by Indian states for improvement of health of its population. Drawing data from the fourteen major states of India over a time span of twenty-three financial years (1974-75 to 1996-97) and using recent advances in panel data time series econometrics, this paper documents the presence of a long-run relationship between income and health expenditure. The long-run elasticity estimates reiterate that publicly provided health services should be considered as "necessities". Results from the panel error correction model demonstrate that ageing of the population and proportion of rural population are the only non-income factors found to exert a significant positive impact on real per capita health expenditure. This is particularly important, in view of the demographic transition that India is passing through