What drives China’s healthcare expenditure? A theoretical and empirical study of determinants and trends

Abstract

As economic development advances, there is an increasing focus on improving health conditions, making healthcare expenditure a critical issue worldwide. In China, healthcare spending has shown a marked upward trend, highlighting the importance of understanding its underlying determinants to guide effective policy-making. This study introduces the application of an SV-TVP-FAVAR model to examine the drivers of healthcare expenditure in China from 2007 to 2022. The analysis reveals that economic factors, demographic composition, and policy interventions significantly influence healthcare spending dynamics. Economic growth is strongly linked to increased healthcare expenditure, with economic factors having a particularly pronounced impact during periods of prosperity. Although an aging population drives greater demand for healthcare, the growth rate of healthcare spending has not kept pace with demographic aging, especially following China’s economic slowdown. Policy variables present a dual-edged impact: while increased fiscal outlays contribute to budget deficits, limiting the fiscal space for healthcare investment, government emphasis on scientific and technological progress tends to enhance healthcare spending, indicating a synergistic relationship between these areas. Furthermore, the study identifies a prolonged impact of the COVID-19 pandemic on healthcare expenditure, which continues to interact with other driving factors over an extended period. The empirical findings from this research provide crucial evidence to support the development of informed healthcare policies.