The nexus between health expenditure, life expectancy, and economic growth: ARDL model analysis for Kenya

Alwago, Wycliffe Obwori (2023) The nexus between health expenditure, life expectancy, and economic growth: ARDL model analysis for Kenya. REGIONAL SCIENCE POLICY & PRACTICE, 15 (5). pp. 1064-1086. ISSN 1757-7802

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Abstract

The study explored the causal effect analysis of healthcare spending and life expectancy on annual gross domestic product (GDP) growth in Kenya utilizing time series data from 2000 to 2020. Autoregressive distributed lag (ARDL) and error correction (ECM) models were applied to inspect the short‐term and long‐term equilibrium and the speed of adjustment to the long‐run equilibrium owing to a disturbance in the short term, respectively. Bounds testing analysis confirmed the existence of a long‐term linkage between the factors. The speed of adjustment from medium‐term to long‐run equilibria owing to structural breaks is statistically significant. This indicated that the system is convergent, but it takes longer to rectify the divergence. Health expenditure significantly influences the growth of GDP in the long run with an insignificant effect in the medium term. Life expectancy substantially and directly influences GDP growth in both the medium term and long term while terms of trade, a control factor, significantly but indirectly influences GDP growth. The Granger causality test reveals the existence of unidirectional causality from healthcare spending to economic growth, although providing no empirical support that healthcare spending enhances long‐run economic growth. Thus, the findings conclude that health expenditure and longevity of life fundamentally enhance the growth of GDP in Kenya for the time considered.

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