Challenges in the Era of Globalization - iaabd

Proceedings of the 12th Annual Conference © 2011 IAABD
Abstract
The wealth-health cycle in West Africa: Is it virtuous or vicious?
M. Femi Ayadi, Ayadim@uhcl.edu
University of Houston – Clear Lake, Houston, TX, USA
This paper investigates the interdependencies that exist between health care expenditures and economic growth
within the Economic Community of West African States (ECOWAS). This is important to guide decision making in
public policy on how improvements in health of the citizenry can serve as a catalyst to output growth or vice versa.
Bivariate Granger causality test was applied to panel data from 1998 through 2006. The results show bi-directional
causality between per capita health care expenditures and Gross Domestic Product. This line of research is needed
within ECOWAS for planning purposes as the region gravitates toward economic integration.
Introduction
The long-term relationship between national income and health expenditures is a prerequisite for planning
health reforms as well as for an efficient allocation of sovereign resources (Sulku and Caner, 2009). Yet,
health systems in Africa are beset with huge financing deficits. While the global average of governmental
expenditure on health is 5.4 percent of GDP, the average for Africa is 2.5 percent of GDP. In 2001, the
per capita spending on health in Sub-Saharan Africa was between $13 and $21 when high income
countries of the world spent about $2,000 (Anyanwu and Erhijakpor, 2009). It is logical for the
Commission for Macroeconomics and Health of the World Health Organization to advocate for increased
spending on health in the region.
The relationship between health care expenditures and economic growth has been widely investigated. A
large proportion of the existing studies have mostly focused on OECD countries due to lack of data from
developing countries. Much of the studies that conducted international comparisons encountered
problems such as lack of homogeneity between countries. The purpose of this paper is to contribute to
the existing literature by investigating the interdependencies that exist between health care expenditures
and economic growth within the Economic Community of West African States (ECOWAS). This
investigation is important to guide decision making in public policy on how improvements in health of
the citizenry can serve as a catalyst to output growth or vice versa. More importantly, this line of research
within ECOWAS is needed for planning purposes as the region is gravitating toward economic
integration. Finally, this research is critical for allocation of scarce resources in an efficient manner.
Literature Review
In a comprehensive survey of the literature, Gerdtham and Jönsson (2000) note that the global interest in
health expenditure is initially premised on cost-containment and cost-effectiveness. They provide an
overview covering several countries. Their analysis shows that aggregate income is the most important
factor explaining variations in health expenditure. Their conclusion supports the view that GDP is the
single most important variable used to explain health care expenditures in macro-studies. Newhouse
(1977) continues the discussion on the relationship between health expenditures and economic
development. He reports that 92 percent of the variance in health care expenditures between countries is
explained by gross domestic product (GDP) and that the income elasticity was larger than one. Since then,
much research along those lines has been done, using all kinds of data including cross-sectional data as
well as time series and panel data.
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