Are Air Pollution, Economic and Non-Economic Factors Associated with Per Capita Health Expenditures? Evidence from Emerging Economies

Abstract

Environmental pollution, rapid economic growth, and other social factors have adverse effects on public health, which have consequently increased the burden of health expenditures during the last two decades. This paper provides a comprehensive analysis of carbon dioxide (CO2) emissions and the environment index, as well as economic and non-economic factors such as Gross Domestic Product (GDP) growth, foreign direct investment, population aging, and secondary education impacts on per capita government and private health expenditures in 13 emerging economies for the time period of 1994–2017. We employ robust econometric techniques in this endeavor of panel data analysis to account for the issues of heterogeneity and cross-sectional dependence. This study applies the Lagrange Multiplier (LM) bootstrap approach to investigate the presence of panel cointegration and empirical results underscore the existence of cointegration among variables. For the execution of long-run analysis, we incorporate the two latest estimators, i.e., continuously updated-fully modified (CUP-FM) and continuously updated- bias corrected (CUP-BC). Findings of long-run elasticities have documented that the air-pollution indicators, i.e., CO2 emissions and the environment index, have a positive and significant influence on government health expenditures, while in contrast, both factors negatively influence private health expenditures in emerging economies. We find that economic factors such as GDP growth consistently show a positive impact on both government and private health expenditures, whereas, foreign direct investment exhibits a significant negative and positive impact on government and private health expenditures respectively. Findings of non-economic factors can be used to argue that population aging increases health expenditures while secondary education lowers private health spending in emerging markets. Furthermore, empirical analysis of heterogeneous causality indicates that CO2 emissions, the environment index, GDP growth, foreign direct investment, and secondary education have a unidirectional causal relationship with government and private health expenditures. Population aging has a strong relationship of bidirectional causality with government health expenditures and unidirectional causal relationship with private health expenditures. Findings of this paper put forward key suggestions for policy makers which can be used as valuable instruments for better understanding and aiming to maximize public healthcare and environmental quality gains which are highly connected with sustainable GDP growth and developments in emerging economies.