PUBLIC HEALTH EXPENDITURE AND HEALTH OUTCOMES IN SUB-SAHARAN AFRICA

Abstract

There is a theoretical link between health expenditure and health outcomes (life expectancy at birth, infant and under-five mortality rates). Public health expenditure is low in Sub-Saharan Africa (SSA), with an average per capita expenditure of US$154.60 compared to a world average of US$1026.50 in 2011. In the same year, life expectancy in SSA was 55 years relative to the world average of 77 years. Previous empirical studies focused mostly on the effects of health expenditure on health outcomes in developed countries, with little attention on SSA. The efficiency of health expenditure in SSA has also been barely examined. This study, therefore, investigated the effects of health expenditure on health outcomes and the determinants of its efficiency. A Cobb-Douglas macro health production model, derived from the Grossman health production theory, was used to estimate the effects of health expenditure on health outcomes. Annual panel data were obtained from the World Bank's World Development Indicators, covering the period 2005 to 2011 for 45 SSA countries. Random and Fixed Effects panel data regression techniques were employed for the estimations, while the Breuch-Pagan Lagrange Multiplier test was carried out to ascertain country-specific effects. The Huber robust standard errors were estimated to correct for the problem of heteroskedasticity. The Data Envelopment Analysis model was used to determine the efficiency of health expenditure. A Tobit model was estimated to identify the factors (including institutional quality, corruption and access to health care) that influence efficiency of health expenditure. Statistical significance was determined at the 5% level. Health expenditure had a statistically significant effect on health outcomes, with coefficients of 0.23, -1.60 and -4.30 for life expectancy, infant and under-five mortality, respectively. This implied that a 1.0% increase in health expenditure improved life expectancy by 0.23 years (approximately two months and 24 days), reduced infant mortality by 1.60 per 1,000 live births and under-five mortality by 4.30 per 1,000 live births. A 1.0% increase in one-period lag of health expenditure improved life expectancy by 0.16 years (approximately one month and 28 days), reduced infant mortality by 1.00 per 1,000 live births and under-five mortality by 3.10 per 1,000 live births. This suggested that the effect of health expenditure on health outcomes was long lasting. The average efficiency score of health expenditure was 0.45, indicating an inefficiency score of 0.55. Efficiency of health expenditure was significantly influenced by quality of public health institutions (76.0%), corruption (27.0%) and access to health care (2.0%). The public health expenditure component of total health expenditure significantly determined life expectancy, infant mortality and under-five mortality. Health expenditure was substantially inefficient due to corruption and poor quality of public health institutions. The impact of health expenditure on health outcomes can be increased if governments emphasize its efficiency through reduced corruption and establishment of quality public health institutions. Keywords: Health expenditure and outcomes, Grossman health production model, Data envelopment analysis model, Sub-Saharan Africa, Life Expectancy at birth. Word count: 453