Determinants of Public Healthcare Investment: Cointegration and Causality Evidence from Pakistan

Abstract

A healthy population and human capital are essential for the emerging countries to achieve faster but more sustainable development, which can only be achieved by investing exclusively in health. The need to probe cause-and-effect relationship between the factors influencing the public health expenditures is the driving force behind this investigation. This study empirically investigates the cointegration and causal relationship between healthcare expenditures (HCE), income, healthcare infrastructure (HCI), and healthcare services (HCS) in Pakistan from 1974 to 2017. Lee-Strazicich and Clemente-Montanes-Reyes structural break unit root tests are employed in addition to standard unit root testing. The Bayer-Hank, Gregory-Hansen, and Hatmei-J cointegration tests consistently show that HCE, income, HCI, and HCS are cointegrated. The short-run Granger causality inferences show unidirectional causalities from HCE to HCI and HCS, from income to HCE, whereas bidirectional causality is observed between HCI and income and between HCI and HCS. Similarly, Long- run casualty results show unidirectional causality from income to HCE, from HCE, income, and HCS to HCI, and bidirectional causality between HCS and HCE.  The findings suggest that the government may play an obligatory role in healthcare financing and must pay special attention to the equitable distribution of healthcare facilities, infrastructure, and services across Pakistan.