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What determines public health expenditures in Pakistan? Role of income, urbanization and unemployment

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Abstract

What determines public health care expenditures at the national level is an important policy question. Since the pioneering work of Newhouse (J Hum Resour 12(1):115–125, 1977) on the relationship between health expenditures and national income, this area of economic inquiry has received much attention. This paper seeks an answer to this question by estimating the factors affecting public health expenditures at the national level in Pakistan. This paper uses annual time series data from 1972 to 2009 and employing unit root and Johansen cointegration methods estimated the determinants of public health expenditures. It is estimated that all variables are integrated of order one and are cointegrated hence in a long run relationship. The income elasticity of public health care expenditures is estimated below unity (at 0.26) indicating health care is a necessity in Pakistan contrary to most of the industrialized countries. Furthermore, it is imperative that government have a larger role in allocating and directing public resources to health care in Pakistan. Urbanization and unemployment variables have elasticity values of −1.33 and −0.37 respectively, implying that it is costly to provide health care to residents of remote rural areas of Pakistan.

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Notes

  1. Contrary to Newhouse (1977) some micro studies, including Grossman (1972), Murinnen (1982) and Wagstaff (1986) observe a slight correlation between income and health care utilization. Because individuals are mostly subsidized and/or they don’t have to pay the full price of using health care resources that is not true for a whole country.

  2. The impact of unemployment on health status is explored among others by Brenner (1987), Gravelle et al. (1981), Joyce and Mocan (1993) and with contrary results. No single attempt, to the best of our knowledge, made to model unemployment as factor affecting per capita health expenditures.

  3. As, most of the modeling in health economics is ad hoc, therefore, studies that followed empirical approach to find evidence of the factors affecting health expenditures have no reliance on theory.

  4. For detail discussion of health care markets and their imperfect behavior see among others; Jack (1999) and Schultz (2004).

  5. Studies that used OECD or other developed countries data mostly used population of age greater than 65 years as a demographic factor (see for example; Hitiris and Posnett 1992; Hansen and King 1996 and Karatsaz 2000).

  6. We make use of only public health care expenditures, as data for private health care expenditures at national level for Pakistan (annual time series) is not available.

  7. The results of up to two lags are presented for all the variables used for analysis (ADF unit root test) including constant and without constant and trend.

  8. The test of stationarity for residual term regress its lagged value on its own without intercept or trend because it is an error term.

  9. We have only estimated income elasticity for public health care expenditures while other mentioned studies used both public and private health care expenditures. This might be one reason for the low income elasticity estimate for Pakistan.

  10. Income distribution in Pakistan is skewed with high poverty levels; hence pose a downward effect on income elasticity of public health care expenditures.

  11. Zaidi (1988) explained that almost eighty percent of the public health expenditures go to urban areas.

  12. Epidemiological transition is used to be thought that—the shift from infectious and deficiency diseases to chronic non communicable diseases—was a unidirectional process, beginning when infectious diseases were predominant and ending when non communicable diseases dominated the causes of death (Omran 1971).

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Acknowledgments

We thank Arnab Basu, Joachim Von Braun, Seid Nuru Ali, Holger Seebens, Iram Khan and Nirmalya Chaudhary for their valuable comments and suggestions on various drafts of this paper. We extend our thanks to Abay Asfaw for reviewing and commenting the earlier draft of this paper. Also, we are grateful to the reviewers of this journal for valuable comments that improved the manuscript immensely. Thanks are also due to Erick Baur for his editorial assistance. For errors remaining usual disclaimer applies. This research was completed when first author was Junior Researcher at Centre for Development Research (ZEF). This is an extended version of the earlier work carried out at ZEF. This paper is a part of first Authors’ PhD research, thus, funding provided by German Academic Exchange Service (DAAD) thankfully acknowledged.

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  1. Department of Management Sciences, COMSATS Institute of Information Technology (CIIT), Park Road, Chak Shahzad, Islamabad, 44000, Pakistan

    Faisal Abbas

  2. Centre for Development Research (ZEF), University of Bonn, Walter Flex Street 3, Bonn, Germany

    Ulrich Hiemenz

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  1. Faisal Abbas
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Correspondence to Faisal Abbas.

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This paper also accepted as Centre for Development Research (ZEF) Discussion paper on development policy No. 158 in December 2011. This is a modified version of this discussion paper.

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Abbas, F., Hiemenz, U. What determines public health expenditures in Pakistan? Role of income, urbanization and unemployment. Econ Change Restruct 46, 341–362 (2013). https://doi.org/10.1007/s10644-012-9130-7

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