The Relationship between Government Health Expenditure and Economic Growth: Evidence from Western Balkan Countries

Abstract

This paper aims to investigate the effect of government expenditure on health and other relevant factors like health insurance, longevity, average age and death rate on economic growth in Western Balkan countries. Countries with higher levels of government expenditure on health tend to have higher levels of economic growth. Investment in healthcare may result in a greater supply of health incentives which may help human capital and enhance productivity and the economy’s performance. This paper uses annual data from 2000-2020 for the following Western Balkan countries: Albania, Bosnia, Herzegovina, Kosovo, Montenegro, Northern Macedonia and Serbia. This region represents a diverse set of countries at different stages of development with varying government expenditures on health. This provides an opportunity to study the impact of health on economic growth in an environment with a lot of "real-world" variation. The data is collected from the World Bank, National Statistical Offices and Eurostat. The dependent variable is economic growth, measured as Gross Domestic Product (GDP) per capita growth. The independent variables are government expenditure on health as a percentage of GDP, health insurance, longevity, the average age of the population, health expenditure per capita and the death rate. In order to measure the impact of individual factors, the study uses econometric models with fixed effects and random effects. The regression analysis results show that government expenditure on health has a positive and significant impact on economic growth in Western Balkans countries.