Effect of Communicable Diseases on the Economy: A Panel Data Analysis

Abstract

Communicable diseases are a major health challenge for the world. However, their negative impacts are felt most in Africa. This panel data study investigates the effect of communicable diseases and health expenditure on the economy. Gross Domestic Product (GDP) and current health expenditure are used as proxies for economic performance and health expenditure, respectively. Incidence of Tuberculosis, prevalence of Human Immunodeficiency Virus (HIV), and adults living with HIV (15 years - above) are the health indicators used in the study. Data for a period of ten years: 2007 to 2016 were collected from seven African countries in low and middle-income countries, according to World Health Organization (WHO) income groupings. Low-income countries are Gambia, Sierra Leone, and Togo, while Egypt, Ghana, Nigeria, and South Africa are middle-income countries. The three analytical panel data models; namely: Pooled Ordinary Least Squares Model (POLS), Fixed Effects Model (FEM) and Random Effects Model (REM) were used. Model selection tests were also performed, using the F Ratio Test, the Breush-Pagan Langrange Multiplier Test, and the Hausman Test, to choose the model that best describes the data. The results of the model selection tests show that the FEM is the most appropriate model for the data; therefore, the result of the FEM is used to interpret the impact of communicable diseases on the economy. First, the FEM analysis generally showed that HIV prevalence has a statistically significant negative effect on GDP, which is consistent with the existing literature. On the other hand, the incidence of tuberculosis and adults living with HIV have statistically positive effect. The result also shows that current health expenditure per capita is positively correlated with GDP, which implies that a unit increase in current health expenditure would lead to an increase of 961 units in GDP, based on the data used. Second, an additional analysis conducted in FEM to determine the effect of the variables in each country reveal that adults living with HIV and HIV prevalence have a statistically significant negative effect on economic performance. In conclusion, communicable diseases are an impediment to economic growth. The prevention and control of these diseases is a step in the right direction towards improving economic performance.