The Determinants of Healthcare Expenditure in Ghana

Abstract

The study is motivated by the conviction that previous studies on the determinants of per capita healthcare expenditure are mostly based on international comparisons. This paper examines the demand-side macroeconomic determinants of publicly financed healthcare expenditure in Ghana. Employing annual time series data on Ghana from 1970-2006 and an error correction model that captures both short-run and long-run relationships; the analysis clearly captures the demand-size factors that motivates decision to allocate financial resources to the health sector. The main finding highlights the dominants of per capita income (Per capita GDP) and other macroeconomic factors such as health status of the population and age structure of the population in influencing the decision to invest in healthcare. This therefore suggests that in order to meet the minimum expenditure requirement for achieving the health related MDGs, per capita income in Ghana ought to be increased considerably. Specifically, the coefficient of per capita GDP is found to be far below unity in the long run and above unity in the short run. One of the major implications of this result is that, healthcare in Ghana is a necessity in the long run and a luxury in the short run. This could be an indication that healthcare delivery is one of the most important issues to Ghana’s policymakers.

Keywords: Determinants, Healthcare expenditure, Income elasticity, co integration, error correction