TOPIC The impact of public health care expenditure on economic growth. The case of Zimbabwe from 1985 to 2010
CHAPTER ONE
INTRODUCTION
This study is carried out to assess the impact of public health care expenditure on economic growth in Zimbabwe. A set of official data on public health care expenditure and GDP levels is used. The data was examined by quantitative methods in order to assess the impact of health care expenditure on GDP
The simplest definition of economic growth is an increase in real gross domestic product (GDP) that is GDP adjusted for inflation. The economic growth rate of real GDP adjusted for inflation. The economic growth rate of real GDP is the percentage change in real GDP from one year to the next. We can express the rate growth in , for example the period 2004-2005 as follows
Growth rate of GDP=[GDP(2005)-GDP(2004] *100 GDP
Comment [d1]: Make sure you type your reg number correctly. That is an oh rather than a zero Comment [d2]: WHAT DO YOU MEAN? Comment [d3]: Economic growth is the increase in the value of goods and services produced by an economy. One way that output can increase is if there is an expansion in the inputs used to produce it. There are five kinds of capital, human produced capital is called manufactured capital to distinguish it from the other kinds of capital land and natural resources are natural capital and all the skills and knowledge possessed by humans are also a kind of capital-human capital. We also note the importance of social and financial capital which both refers to institutional arrangements that make production possible.
Economists think about output as being generated according to a production function which is a mathematical relation between various inputs and the level of output. In the most general sense we might say that the output of an economy should be expressed as a function of flows from all the different types of capital theat make production possible. The inputs to the production function are commonly referred to as factors of production. In the production functions most commonly used by economists, the factors that are emphasized are manufactured capital and labour. Sometimes but not always, natural resources also are included
One very influential and more specific model of economic growth was developed by economist Robert Solow in 1957. In his model he assumed that an economy wide production function can be written in the simple form:
Y= A K 0,3 L 0,7
where Y is aggregate output, K is quantitative measure of the size of the stock of manufactured capital and L the quantity of labour used during the period of time. K and L are the only factors of production explicitly included in the model. Both capital and labour are needed for the production of output with the exponents in the equation reflecting their relative contributions
A is called total factor productivity, and includes all contributions to total production not already reflected in levels of K and L. Often total factor productivity has been interpreted Comment [d4]: THIS IS UNNECESSARY? Comment [d5]: WHERE IS THIS COMING FROM? You need coherence and flow of ideas in your study. One time you are talking of economic growth and the next minute you are talking of capital what are you tryuing to explain? Comment [d6]: Are you sure the superscripts are 0.3 and 0.7 or rather thay should be alpha and beta and should add up to one? as reflecting the way in which technological innovation allows capital and labour to be used in used effective and valuable ways
Economic growth and improved productivity are critical to a countrys future. It is only through economic growth and improved productivity that hope and opportunity is restored especially for Zimbabwes young people entering the workforce. According to Mark (2002) economic growth reduces unemployment rate in an economy
Since economic growth is important, several researchers have studied both long and short-term determinants of economic growth using explanations from the fields of economics, political science, sociology and geography (Zipfel J 2002). Economic growth play a critical role in the trend of entitlement spending which is counter-cyclical, rising as a percentage of GDP during economic down turns and declining relative to GDP during economic expansions. Economic growth is also important because tax revenues will automatically grow factor than the economy because of a real bracket creep, where real growth causes some tax payers to move into higher tax brackets, increasing incomes tax revenue (Zipfel J, 2004)
Most studies have shown that a micro policy framework conducive to growth is a necessity. Countries with strong macroeconomic fundamentals tend to grow faster than those without them though there are many individual cases of both developing and developed countries that suggests that satisfying only some of these conditions does not result in faster growth. These macroeconomics fundaments can be broken into several components for example took determinants of economic growth as inflation, labour force goods import, import duties and public spending on education ( Dewan and Hussein 2001). Most of the researched work on determinants of economic growth gave credit to investment, both in human capital and physical capital terms
The problem is emerging on human capital investment as a determinant of economic growth because it consists of both education and health components. Most studies on economic growth determinants examined effects of government spending on education Comment [d7]: Revise the statement. Comment [d8]: This is unnecessary. on a countrys growth and development. Most studies ignored health expenditure which is another component of human capital. The aim of this study is to cover this gap and treat the health aspect in macroeconomic analysis by introducing health capital to the model of growth with the government which undertakes productive public health expenditure
As part of the study it is also important to have an understanding of the general profile of Zimbabwe in relation to the health sector. The following section gives an overview of the countrys general profile
Background of the StudyGeneral Profile of the Country
Zimbabwes achievements in human capital terms put it near the top of developing countries in terms of its health achievements and its space of attainment. Zimbabwe is one of the few countries in Southern Africa that managed to increase government health expenditure in real terms during the 1980s (Saunders, 1996). During the 1980s, Zimbabwes economy grew briskly; real GDP growth averaged about 4% per year as compared to a 2% GDP growth rate for its surrounding countries like Zambia. During the early and mid- part of the decade, Zimbabwes exports were diversified and became increasingly oriented towards manufacturing; debts were regularly repaid without the need for rescheduling; a reasonable degree of food security was attained; and the provision of educational and health services was drastically expanded (due to major increases in government spending on social services). As a result of increased government spending on health care provision in particular, health indicators showed dramatic improvements during the 1980s: the infant mortality rate declined from 100 per 1 000 live births to 20 between 1980 and 1988; life expectancy increased from 56 to 64 years (Naiman and Watkins, 1999). Naiman and Watkins (1999) summarized the achievements of the 1980s as: The core of the governments redistributive agenda was through increased public expenditures on education, health and public sector employment. During the 1980s, much was achieved both in terms of an expansion of these expenditures and in terms of measurable indicators of performance. mentioned below
EXTERNAL RESOURCES FOR HEALTH (% OF TOTAL EXPENDITURE ON HEALTH) IN ZIMBABWE
The following table contains the historical data for External resources for health (% of total expenditure on health) in Zimbabwe. External resources for health are funds or services in kind that are provided by entities not part of the country in question. The resources may come from international organizations, other countries through bilateral arrangements, or foreign nongovernmental organizations. These resources are part of total health expenditure.
Year Percentage of total expenditure on health 2004 4,83 2005 11,64 2006 20,82 2007 17,34 2008 0,18
EXETRNAL RESOURCES FOR HEALTH (% OF TOTAL EXPENDITURE ON HEALTH) IN ZIMBABWE. Comment [d9]: Consider using sentence case rather than uppercase. Comment [d10]: Label your tables please and cite the source. Comment [d11]: Whats the essence of putting two diagrams to explain the same thing? Chose one which you want to use.
HEALTH EXPENDITURE; PUBLIC (% OF TOTAL HEALTH EXPENDITURE) IN ZIMBABWE
The following table and graph show the historical data for Public Health expenditure (% of total health expenditure) in Zimbabwe. Public health expenditure consists of recurrent and capital spending from government (central and local) budgets, external borrowings and grants (including donations from international agencies and nongovernmental organizations), and social (or compulsory) health insurance funds. Total health expenditure is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation.
Years Health expenditure;% public( of total 4.83 11.64 20.82 17.34 0.18 0 5 10 15 20 25 yr2004 yr2005 yr2006 yr2007 yr2008 E x t e r n a l
r e s o u r c e s
f o r
h e a l t h ( %
o f
t o t a l
e x p e n d i t u r e
o n
h e a l t h )
years Comment [d12]: Again label your tables and desist from using two diagrams to explain one issue. health expenditure) 2004 30.65 2005 40.93 2006 45.35 2007 48.72 2008 46.26
HEALTH EXPENDITURE; PUBLIC (% OF GOVERNMENT EXPENDITURE) IN ZIMBABWE The following section shows the historical data for Health expenditure; public (% of government expenditure) in Zimbabwe. Public health expenditure consists of recurrent and capital spending from government (central and local) budgets, external borrowings and grants (including donations from international agencies and nongovernmental organizations), and social (or compulsory) health insurance funds. .
30.65 40.93 45.35 48.72 46.26 0 10 20 30 40 50 60 Year 2004 year2005 Year2006 year 2007 year2008 h e a l t h
e x p e n d i t u r e ,
p u b l i c ( %
o f
t o t a l
h e a l t h
e x p e n d i t u r e )
years
years Health expenditure public( % of government expenditure) in Zimbabwe 2004 8.89 2005 8.89 2006 8.89 2007 8.89 2008 8.89
HEALTH EXPENDITURE; PUBLIC (% OF GDP) IN ZIMBABWE The following includes a graph with historical data for Health expenditure; public (% of GDP) in Zimbabwe. Public health expenditure consists of recurrent and capital spending from government (central and local) budgets, external borrowings and grants (including donations from international agencies and nongovernmental organizations), and social (or compulsory) health insurance funds. 8.89 8.89 8.89 8.89 8.89 0 1 2 3 4 5 6 7 8 9 10 year2004 year2005 year2006 year2007 year2008 H e a l t h
e x p e n d i t u r e
,
p u b l i c
( %
o f
g o v e r n m e n t
e x p e n d i t u r e )
years
years Public health care expenditure(% of GDP) Year2004 2.33 Year2005 3.44 Year2006 4.06 Year2007 4.55 Year2008 4.14
JUSTIFICATION OF THE STUDY
Traditional studies on economic growth on developing economies have ignored the influence of public health care expenditure in growth process .Since the discovery of the importance of human capital in economic growth many researchers have the effects of 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 year2004 year2005 year2006 year2007 year2008 p u b l i c
h e a l t h
e x p e n d i t u r e
( %
o n
G D P )
Years Series1 Comment [d13]: Include background information from other developing and developed countries to substantiate your study.Also try to include background infor from as far as 1985 because that how long your study stretches to. government expenditure on education on a countrys growth and development (capolupo .2000.) .However evidence from other studies (Mushlan1962) suggests that human capital consists of two components education and health .In this context health which is another component of human capital has been largely ignored in the growth studies.
To date very few studies have incorporated public health care expenditure as an explanatory in the growth model ( scheffler 2004). Those few studies were done for the case of developed countries. Weil (2005) concluded that improving the health and longevity of the poor is an important step towards economic development.
Very little work however has been done in the case of developing countries. Among the noted few are Hari (2002) and Chie T.N (2005). Who tested of influence of public health spending on economic growth in 14 developing major states of India and Malawi respectively? They came up with conflicting evidence Hari found a positive relationship between economic growth and public health care expenditure while Chie found public expenditure on health to have no effect at all on economic growth
It is the aim of this study therefore to provide further empirical evidence on the impact of public health care expenditure on eEconomic gGrowth in Zimbabwe from 1985 to 2010 other determinants of the economic growth will be considered although much be on public health care expenditure
PROBLEM STATEMEMT Since the publication of The Wwealth Oof Nnation by Adam Ssmith in 1776 the forces driving economic growth have fascinated economists. The neoclaasical hypothesized that the rate of capital investment plays a central role in economic growth. From the traditional neoclassical growth prospective, the rate of economic growth depend on change in the as well as the quality of the administrative and managerial resources underlying the aggregate production (Soiow 1956 , Swan 1956). To date the concept of Comment [d14]: Read this statement. If you fail to find meaning in it delete it Comment [d15]: KNOW WHERE AND WHEN TO USE CAPITAL LETTERS. YOUR WEORK IS UNTIDY. economic growth is still taking a centre stage and it has become a subject of interest to many as researchers are digging dipper to establish the driving economic growth and this study is no exception.
HYPOTHESIS H 0 : Increase in health care expenditure increases economic growth in Zimbabwe
H 1 : Increase in public health care expenditure has no effect on economic growth in Zimbabwe
RESEARCH QUESTIONS
1 Does public health expenditure have an effect on GDP in Zimbabwe?What is the effect of public health expenditure care on GDP? 2 What are the other factors that influence economic growth in Zimbabwe? 3 What percentage of total health care expenditure in Zimbabwe is public health care expenditure? 4 What percentage of total GDP in Zimbabwe is health expenditure? 5 What percentage of government expenditure is public health care expenditure?
OBJECTIVES OF STUDY
1. To analyze the effects of public health care expenditure on the economic growth process in Zimbabwe.
2. To investigate the other major determinants of economic growth with more emphasis on the assessment of the impact of public health care expenditure on the economic growth process in Zimbabwe 2. 3 To investigate the general profile of Zimbabwe in relation to health sector
SIGNFICANCE OF THE STUDY
Comment [d16]: What is the problem? As far as I am concerned this is not aq problem statement. As it rightly says, a problem statement should bring out the problem you are trying to investigate. If you have access to the internet please search on examples of problem statements. This statement of yours shows that there is no problem. Comment [d17]: I dont think you are researching on these because these are already there. Remove them from the research questions Formatted: Numbered + Level: 1 + Numbering Style: 1, 2, 3, + Start at: 1 + Alignment: Left + Aligned at: 0" + Tab after: 0.25" + Indent at: 0.25" The main aim of the study is to bring to light the effects of public care expenditure to economic growth
To the economy
After realizing how much economic growth respond to changes in public health care expenditure it is important in understanding what is happening on the public health sector and resources can be allocated.
It helps in the designing of the policies that influence economic growth
To the public health sector
Knowing the effects of public health care expenditure of economic growth the public health sector will be in a better position to decide policies that minimizes cost as well as maintaining good health care services.
To the university
The research will provide literature or secondary data source for the library and will open avenues for further study for other students and members of staff who may want to carry out researches in this area.
To the student
The research is an eye-opener for the personal development and an opportunity to relate theories learnt to the actual situation in the industry
Organization of the Study The rest of the study is organized as follows: Chapter two reviews both theoretical and empirical literature. The methodology and choice of variables are presented in chapter three while estimation and interpretation of results is in chapter four. Finally, concluding remarks, policy implications and recommendations, limitations and areas of further research of this study are presented in chapter five.
CHAPTER 3 : METHODOLOGY
INTRODUCTION
This chapter proceeds with the discussion on the methodology and model specification. The researcher will highlight the research design. The study makes use of secondary data collected from Zimbabwe National Statistics Agent (ZIMSTAT). Data for economic growth was collected from ZIMSTAT National Account section and data on public health care expenditure ZIMSTAT health statistics section.
THE MODEL
CONCEPTUAL FRAMEWORK OF THE MODEL
Several macro models in the Keynes-Tinbergen-Klein tradition have generally concentrated on estimating the impact of aggregate output or employment on economic growth in developing countries (Lau, 1978). In general, the studies have shown that macro variables such as employment and aggregate output have a significant impact on economic growth. This works through the distribution of income and relative prices. It is through this transmission mechanism; according to Behrman (1990a), that investment in health care has direct effect on economic growth through labour productivity.
MODEL SPECIFICATION The basic methodological approach and model follows the leads of Lucas (1988), Kramer (1991), Mankiw et al (1992) and Gemmell (1996). Based on these studies the model is specified as ECG= 4 3 2 1 0 FD NEP LF PHE e VA D PED GFCF 1 6 5
where ECG = economic growth measured as percentage change in GDP PHE = percentage change in public health care expenditure LF = percentage change in labour force NEP = percentage change in nominal exports FD = percentage change in foreign debt GFCF = percentage change in gross fixed capital formation PED = percentage change in public education expenditure D 1 VA= economic crisis dummy s = parameter coefficients to be estimated e = error term
DESCRIPTION AND JUSTIFICATION OF VARIABLES
ECONOMIC GROWTH (ECG)
In all countries, economic performance is a measured by GDP growth and GDP is standard and universal measure. Economic growth is calculated as a percentage change in Gross Domestic Product (GDP). The gross domestic product variable is included in this model because it reflects domestic productive capacity. A rise in output lead to higher demand for goods produced in the economy. Investment becomes more profitable. Healthy investors respond by increasing investment.
PUBLIC HEALTH CARE EXPENDITURE (PHE)
Public health care expenditure is therefore used to capture how much funds are channeled to health and how big the investment in health is. Public health care expenditure is a good proxy for the level of economic growth.
LABOUR FORCE (LF)
If the economys labour force is high and fully employed, the economy is likely to produce more. Thus economic growth is positively related to labour force growth. High unemployment rate affects the growth of the economy negatively.
PUBLIC EDUCATION EXPENDITURE (PED)
Public education Expenditure is seen as the engine for human capital investment in most economies more of government expenditure is allocated to educatioN
NOMINAL EXPORTS (NEP)
Exports are a major source of economic growth, both directly because they are part of production and indirectly as exports facilitate imports of goods, services and capital, and thereby also of new ideas, knowledge and also technology. By encouraging specialization according to comparative advantage, high and rising export levels enhance static and dynamic efficiency and economic growth. The rapid expansion of exports relative to out- put in the fast growing East Asian economies over the years, for instance, is hardly an accident; it was export-led growth. Several studies in both developing and developed economies (Awundu and Jaquet, 2002) show that exports are a vital source of economic growth. So there is a positive relationship between exports and economic growth.
FOREIGN DEBT (FD) Hypothesis posits that the accumulated external debt of a country acts as a tax on future output and thus discourages private investment and therefore economic growth. Analysts agree that poor investment performance and growth of many highly indebted poor countries like Zimbabwe since the onset of global debt crisis in 1982 can be attributed partly to the disincentive effect of their external debt burden. This phenomenon is referred to as the debt overhang problem
GROSS FIXED CAPITAL FORMATION (GFCF) Investment variable is used to analyse the possible differential impact that it has on economic growth. It is an important component in the economy that needs to be given necessary attention, since it raises long-term rate of economic growth. Khan and Reinhart (1990) recognize the important role played by private investment in generating economic growth. Studies by Greene and Villanueva (1991) also found a complementary relationship between private and public investment in achieving better economic performance. Investment is one of the major determinants of economic growth as it enhances output through the creation of more employment and hence more output is produced. A part of every additional income received by the additional worker employed as a result of more investment expenditure is consumed and the other part is saved. This continues until the initial amount invested is saved. As such, the relationship between economic growth and gross fixed capital formation maybe described as a positive association
Dummy variables D 1 VA
Dummy variables are included in the model to capture the effects of several polices in specific time periods in Zimbabwe. D 1 VA is a dummy variable responsible for capturing the effects of economic crisis, which takes the value of 1 in the years of economic crisis from 2004-2008 and 0 other wise. The downturn of the economy spells disaster to economic activities and consequently on economic growth. It is therefore postulated that economic crisis and economic growth are negatively related; hence 9 is expected to be negative.
DATA SOURCES AND TYPES
The study uses annual time series data covering the 1975 to 2005 period. The data obtained from existing publications. The period chosen was long enough to analyze the impact of public health care expenditure on economic growth taking into account other growth variables. Data for GDP, public healthcare expenditure is obtained from ZIMSTAT National Account
MATHEMATICAL TOOLS This study utilizes single equation Ordinary Least Square (OLS) estimation technique. The choice of this technique is due to its simplicity, convenience and it has been successfully used by other similar studies. Additionally, the parameter estimates obtained by using this technique are BLUE, thus, they are best, linear and unbiased estimators. Stock (1987) has shown that the OLS estimators of the coefficients have a desirable property known as super-consistency, thus provided the OLS assumptions are not violated
Comment [d18]: Your topic says the study is from 1985 now you say 1975 which is which?