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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 8 NO 2, DECEMBER, 2010


DETERMINANTS OF HEALTH EXPENDITURE IN NIGERIA

Kehinde Kabir Agbatogun and Abayomi Samuel Taiwo

Department Economics, Tai Solarin University of Education,Ijebu-Ode, Ogun State

.                                           E-mail:kennyagbax4u@yahoo.com

 

Abstract

The paper examined the significance of the determinants of total government health expenditure in Nigeria. The various literature show that improvement of health sector is sine-qua-non to sustainable economic growth and development. Using regression analysis on macroeconomic data gathered, the results showed that GDP is the most important determinant of health allocation and Literacy rate is insignificant to the degree of total government health expenditure in Nigeria. Consequently, there is need for proper implementation and monitoring of Nigeria National Health insurance Scheme (NHIS) as an alternative means of funding health in Nigeria, since this will reduce the burden that the government will have to bear as regards financing healthcare of the citizenry. Aside this, there is need for health sector reforms aimed at improving the health of the people and reduce the burden on the government by encouraging more private sector  participation  than we have not.

Keywords: Health, expenditure, determinants, growth, development

 

 Introduction


The Nigerian health care system, comprising of Primary health Care (PHC), Secondary health centres and tertiary health institution is presently characterized by inadequate infrastructure and lack of basic amenities. The federal government has commenced refurbishment of some of the teaching hospitals in the Country. Despite these efforts, most of the existing health services are inaccessible to the vulnerable groups especially the poor and people living in rural and undeveloped areas, which are adversely influencing their health outcomes.

 

The role of human capital in factoring economic development is well recognized in the literature. Thus, the justification for higher expenditure on human capital development, in which health status is an integral part, is often based on its impact on individuals’ lifetime incomes, economic growth and fostering of economic development and poverty reduction in general.  Better health enhances the effective and sustained use of knowledge and skills that individuals acquire through education (Schultz, 1991). Better health can reduce the depreciation of education capital and thus increases the favourable effect of education on growth.

 

Having known that there is a positive relationship between health and economic growth, then for any economy to develop, it must commit sufficient expenditure to health to achieve desired levels of health status and economic development. There have been a lot of studies on different factors or determinants of health expenditure in the developed economies where public or government expenditure on health is small but looking at some developing countries like Nigeria, where a significant proportion is borne by the government then, there is therefore a need to know the determinants of government health expenditure and how these factors affect the whole economy.

Health care expenditure is affected by a number of determinants and each  varies in importance, from country to country. There is a widespread belief that an understanding of the fundamental determinants of health care spending may yield valuable insight into how expenditure can be controlled. Considering a developing economy where the bulk of health care spending is shouldered by the government, a natural starting point will be an exploration of these determinants. Using macroeconomics data, such as Gross Domestic Product (GDP) per capita, Population growth, the share of the population that is 65years and above, Literacy rate, and total government health expenditure (TGHE) from 1980 to 2008, both descriptive and inferential statistics; specifically, regression method of analysis will be used  to suite the purpose of the study. Therefore, the broad objective of this study is to examine the impact of various determinants of health expenditure in Nigeria context, while in specific terms, the objectives of the study include the estimation of the relationship that exist between government health expenditure and the identified determinants, as well as evaluation of the impact of health on the economic development of Nigeria.

 

 

The paper is divided into four sections. Section two of the paper  gives an insight into the literature review with emphasis on the different sources of funds available to government and the trend of government health expenditure in Nigeria, the third section comprises descriptive analysis, the interpretation of the regression results, while the last section rounds off the study with the summary, conclusion, recommendation and policy implications of the findings.

 

Conceptual issues

Impact of health on economic development       

The dual role of health as both an input and output makes it a vital component of economic growth and development. It is important to appreciate how truly dramatic the improvement in World Health has been over the past half-century. In 1950, 280 out of every 1000 children in the developing world die in low-income countries while the high-income countries have 5 in every 1000 children.

 

A lot of killer diseases have been eradicated or nearly eliminated in the developed world. Many childhood diseases such as rubella and polio have been largely controlled through the use of vaccines. Despite all these, the developing world still has to face great changes of improving the health of its people. Child mortality rates in developing countries remain more than ten times higher than those found in the rich countries. These deaths generally result from conditions that are nearly treatable, including millions who continue to die needlessly each year from dehydration caused by diarrhoea.

 

Health and education are closely related in economic development. Greater Health Capital may improve the return to investment in education, because health is an important factor in school attendance and in the formal learning process of a child. A longer life raises the return to investment in education; better Health at any point during working life may in effect lower the rate of depreciation of education capital.

 

Another thing that is well known is that ill-health is a major cause of poverty. We use to think that poverty is caused by bad health, but serious illness causes people to drop out of the labour market and become poor even if they are very good workers. So, to develop a country there is need to improve the health of the population. Also, the adult education of a woman reduces the cost of making the population healthy. If you educate the female, then you increase the health of the family because she is the primary producer of health within the family. Thus, educated females are critical to the process of economic development. Since it has been established that healthier people improve labour productivity while in turn leads to higher wages and GDP.

             

In the early empirical review of the impact of health on economics development, Sorkin (1997) pointed out several ways how health programmes could have an impact on economic development in developing nations.

The first way is though productivity gain and increasing man-hours of work. Jack (1999) explains that productivity of labour depends on factor like physical and mental capabilities, investments in human capital and efficiency of labour organization and management, and emphasizes change in health could affect labour productivity though the previous channels. Also, labour productivity could also be reduced by the need to care for sick relatives or by reducing years of schooling if parent are chronically ill. On the other hand, improvement in health could positively affect the experience level of the work by increasing their life expectancy and good health status condition.

The second way is making feasible the development of previously unsettled regions. Sorkin(1997) opined that a major health program could initiate the development of an area where economic activity was deterred by unfavourable health matters. Bryant(1969) indicates that health and health services can  improve or retard economic development as well as  social and economic changes within a region.

 

The third way is improving innovation and entrepreneurship by changing the attitudes of people. Malenbaum(1970) used a step wide regression equation with macroeconomic data of 22 poor countries, using agriculture output as the  independent variable, with several social economic  and health data as dependent variables with this, he showed how the influence of health factor on output seems to be large compared with other economic and social variables.

 

Aguayo-Rico et al (2005), in order to evaluate empirically the Solow model with human capital, the model was estimated through a panel data analysis, which includes the growth rates of physical capital, labour, schooling and health indices. The “heath index” includes four determinants of health; lifestyles, environment, health services and socio-economic conditions. It was observed that all variables were all significant showing the impact health has on economic growth. It was observed that among the determinants of health considered, health service resulted became the most significant.

 

They concluded that a higher awareness of the health of the people is necessary if sustainable growth is pursued especially for the third world for policy implications; it is notorious how health can affect not just the economic health of a person but of an entire nation.

 

 

 

Government and health financing

A number of different sources of funds are available to government in order to finance health programmes. These include general tax revenue, deficit financing and inflation, import and export duties, sales taxes and excise duties, lotteries and other gambling operation, social insurance and external assistance.

 

Government health expenditure in nigeria

Funding health in Nigeria is from a variety of sources that include budgetary allocation from government at all level (Local, State and Federal), loans and grants, private sector contribution, out of pocket expenses. The value of private sector and out of pocket expenses contribution to health financing is yet to be determined.

 

The Federal government recurrent health expenditure between 1970 and 1975 rose by approximately 42% while the capital expenditure for same period rose by 153%. This continued to increase until 1979 when there was a decline of 62% in recurrent and 31% in capital. Thereafter, the figure picked up in 1982 after decline; capital had 59% and by 1984 the recurrent expenditure also declined by 46%,thus the decrease in capital expenditure on health persisted till this period. These figures picked up again but expenditure  declined in 1987. while current expenditure became 74%, capital expenditure had 9% but quickly picked up in 1988 and the figures continue to rise till date. capital expenditure however experienced a decline between 1991 and 1992 (CBN 1993).

 

According to the World Bank Source, the public spending per capital in Nigeria is less than 5 USD and can be as low as USD 2 in some parts of Nigeria. This is far cry from USD 34 recommended by WHO for low income countries within the macroeconomics commission report. Although the Federal Government health recurrent budget as a percentage of recurrent expenditure showed an upward trend between 1996 and 1988, a decline in 1999 from 2.73% to 1.95% and rose to 2.52% in 2002. It stood at 4.25% in 2003, 5.38% in 2004 and declined again to 3.38% in 2005. Available evidence indicates that the bulk health current expenditure goes to personnel. Beyond budgetary allocation a concern in funding health sector in Nigeria is the gap between budgeted figures and the actual trends released from treasury for health activities.

 

The National Health Insurance scheme (NHIS) was introduced by NHIS Act 35 of 1999. It is an avenue to better the lot of workers and their families. The programme is made compulsory for those in formal sector where the employees are expected to contribute 5% of their basic salary and the employers are to pay 10% towards the scheme. The programme also gives room to those in informal sector to participate in the scheme though optional. The informal sector programme is of two types: Community – Based Health Insurance (CBHI) and Worker-Based Health Insurance (WBHI). The benefit under the informal Sector is decided by the members in conjunction with the regulatory body. The scheme allows a person to decide which centre he / she wishes to register with and also free to change from one service provider to another at a specific period and in line with the laid down procedure for such transport (NHIS Act 1999).

 

Health Maintenance Organizations (HMOS) and Mutual Health Organization (MHOs) are expected to play a major role of coordinating the health centres providers, while the overall regulation of the scheme rests with the National Health Insurance Council (NHIC).

Nigeria has just of recent kick started the process towards estimation of National Health Accounts (NHA) with technical and financial support from WHO. In view of the current developmental stage of NHA system. Nigeria, the country is just at the point of tapping the full benefit of NHA such as the provision of tool for evidence based decision making in health policy, health financings and health intervention (WHO, 2007).

 

Methodology

The data utilized in this study consists of annual observation on Total Government Health Expenditure (TGHE), Gross Domestic Product (GDP) per capita income, population and literacy rate in Nigeria. The data were obtain from various CBN statistical bulletin, National Bureau of statistics(NBS) and World Bank Group- World Development Indicator (WDI).

To achieve the stated objectives, the model specified in function form is


TGHE = F (GDPPCI, POPGR, LR)

 

In a multiple linear equation form is

TGHE = a0 + a1 GDPPCI + a2 POPN + a3 LR + µ

To ensure linearity of the results the logarithms format of the model is specified below. 

LogTGHE = a0 + a1LogGDPPCI + a2LogPOPGR + a3LogLR + µ

Where

LogTGHE = Logged Total Government Health Expenditure

LogGDPPCI=Logged Gross Domestic Product Per Capita Income

LogPOPGR= Logged Population Growth Rate

LogLR= Logged Literacy rate in Nigeria.

µ = Error term.

a0, a1, a2, a3, are constant and unknown parameters.

 

 

Regression results

Dependent Variable: LOGTGHE

Method: Least Squares

Date: 09/21/10   Time: 06:27

Sample(adjusted): 1980 2007

Included observations: 10

Excluded observations: 18 after adjusting endpoints

Variable

Coefficient

Std. Error

t-Statistic

Prob. 

C

2.307811

4.076277

0.566157

0.5918

LOGGDPPCI

-28.06032

21.77053

-1.288913

0.2449

LOGLR

-0.165188

0.876788

-0.188402

0.8568

LOGPOPGR

1.978846

2.614459

0.756885

0.4778

R-squared

0.253624

    Mean dependent var

3.290073

Adjusted R-squared

-0.119564

    S.D. dependent var

0.513462

S.E. of regression

0.543291

    Akaike info criterion

1.906831

Sum squared resid

1.770991

    Schwarz criterion

2.027865

Log likelihood

-5.534156

    F-statistic

0.679613

Durbin-Watson stat

2.782352

    Prob(F-statistic)

0.595859

 

Interpretations of regression results


From the above results, the values of a0, a1, a2, and a3, are given as 2.307811, -28.06032, -0.165188, and 1.978846 respectively. Virtually, all the independent variables conform with the theoretical expectations of the concept.  The rule of thumb guiding the t-test states that for statistical significance to be established, the t-calculated must be greater than the t-tabulated at 5% or !% level of significance. Thus, only the GDP per capita income is significant while others are insignificant. Furthermore, R-squared in the analysis shows a good measure of fit 25.4 % while the remaining 74.6% are other factors which affect the dependent variable total government health expenditure (TGHE) but were not captured in the model. The result of the Durbin-Watson Statistics reveals that there is present of serial auto-correlation as the value lies above the range 0 and 2.

 

Conclusion

The developing nature of the economy has a great impact on what the country records as her GDP yearly. The reason for this is not far-fetched, ranging from agrarian nature of the economy, dependency on oil, low level of technological development and human capital development which are ingredients of economic development all contributed to this and as a result of the dependency of health expenditure on GDP, the share of GDP health sector gets from it is greatly affected.

 

The literacy rate borne by the country has a negative impact of the health expenditure. This is because only few percentage of the entire population are educated and has awareness about healthcare. Besides, even health facilities are not judiciously used when obtained and now become burden for the country. Also to mention here is the impact of population growth on health expenditure, population growth in Nigeria is higher than the growth in the health expenditure thereby resulting in low per capita health expenditure. Government attention has shifted to providing for other needs of the population and leaving their healthcare partly in their hands.

 

Recommendations

Health is vital in economic development. Therefore, to enhance a sustainable economic development and keep pace with the millennium development goals, a country must aspire to enhance the funding of its health sector. To this end, the following suggestions are offered

Alternative means of funding health: There is a need for proper implementation and monitoring of our National Health insurance Scheme (NHIS) as an alternative means of funding health in Nigeria, since this will reduce the burden that the government will have to bear as regards financing of healthcare of the citizenry. Aside this, there can still be other health sector reforms aimed at improving the health of the people and reduce the burden of the government, this can be in form encouraging the private sector to participate more than what we have not.

 

More so, there is a need for the government to increase the share of the sector in the National Budget or as a percentage of the GDP. It is important to invest in health as a tool of macroeconomic policy, due to the fact that differences in economic growth rate between countries has been significantly explained by health difference, showing that investment in health improves economic growth and is one of the few feasible options to destroy poverty trap (WHO) 1999.

 

References

Aguyo-Rico, Andres and Iris A. Guerra-turrubiates (2005). Empirical evidence of the Impact of Health on Economic growth. Issue in political economy  Vol.14.                                        

 

Anisworth, Martha and Mead (2005). AIDS and African Development. World Bank Research observer  vol.9  (2)  pp. 203-240.

 

Behrman Jere R and Deolalikar, Anil B. (1998). Health and Nutrition. Handbook      of Development economics vol.1 pp. 631-711.

 

Central Bank of Nigeria (2007). Statistical Bulletin vol.18 Dec. Abuja

 

Culyer A J (1998). Health care Expenditure in Canada: Myth and reality; past and future. Canadian paper No.82.

 

Di Matteo (2007). The Determinants of public-private mix in Canadian health care expenditure 1975-1996. Journal of health policy, vol.52 pp.87-112.

 

Fosu, A.K (1996). The Impact Of External Debt On Economic Growth In Sub-Saharan Africa Journal Development vol. 21 no 1 pp. 93-117.

 

Fosu, Augustine Kwasi (2001). The External Debt Burden and Government  Allocation for Health Expenditure in Sub-Saharan. Africa Economic  Research consortium Nairobi, Kenya. Retrieved from

 www.wider.unu.edu/conference on 5th June, 2006.

 

Gerdthan U.G, Peggard J., Anderson F and Johnson, B (1992). Econometric  Analysis of Health Care Expenditure:A cross-section study of the OECD countries. Journal of Health Economics Vol.11: pp 163-184.

 

Getzen T.E (1990). Macro forecasting of national health expenditures:Advances in health economics and health services research vol.11.pp 27-48.

Gujarah, D.N (2003) . Basic Econometrics 4th Edition, New York, McGraw-Hill/Irwin.

 

Jack, W. (1999). Principle of Health Economics for Developing Countries. Washington D.C: World Bank Institute Development Studies.

 

Kuleka P. Josphat and Morrissey Oliver (1999). Government Spending and Economic Growth. Empirical Evidence from Tanzania (1965-1996). Paper prepared for the DSA conference, University of Bath.

 

Malenbaum, Wilfred (1970). Health and productivity in poor areas. Empirical studies in health economics.Baltimore,MD. The John Hopkins University Press.

 

Matteo Livid Di and Rosanna Di Matteo (1998). Evident on Determinants of Canadian Provisional Government Health Expenditure. Journal of health economics vol.17, no 2: pp 211-218.

 

Smith, James P. (1998). Socio economic status and health. American economic        revised vol. 88, pp 192-196.

 

Sorkin, Alan L. (1977). Health economic in developing countries.Lexington,MA: Lexington books.

 

Sorkin, Alan L. (1986). Financing health development projects: some macro-economic considerations. Journal of  Social Science and Medicine vol.22, no 3 pp 345-349.

 

Speidel J. Joseph (2001). Environment and Health Population, consumption and Human health. Canadian Medical association.

 

World Health Organisation (1999). WHO on health and economic productivity.Population and Development Review vol.25 no 2 pp 396-401.

 

 World Bank Group (2010). World development indicator (WDI).    


  

 

Appendix

Presentation of data

Years

Literacy

Population

Total

Total

Gross

GDP

 

rate

growth rate

govt. health

health exp.

Domestic

per

 

 

(annual %)

exp. (#m)

gwth rate

Product

capita

1980

67.0642

2.96

302.5

39.27272727

_

-

1981

NA

2.81

248.2

21.87751813

251052.3

0.003276

1982

NA

2.68

286

13.21678322

246726.6

0.003134

1983

NA

2.61

279.6

2.288984263

230380.8

0.002851

1984

NA

2.6

190.2

47.00315457

227254.7

0.00274

1985

59.19843

2.64

223.9

15.05136222

2530103

0.029713

1986

NA

2.68

378.4

40.82980973

257784.4

0.002947

1987

NA

2.7

236.4

60.0676819

255997

0.002849

1988

NA

2.7

443.2

46.66064982

275409.6

0.002983

1989

NA

2.67

452.6

2.076889085

295090.8

0.003112

1990

51.33566

2.63

658.1

31.22625741

472648.7

0.004856

1991

NA

2.58

757

13.06472919

328644.5

0.00329

1992

NA

2.55

1025.4

26.17515116

337288.6

0.003292

1993

NA

2.52

2684.5

61.80294282

342540.5

0.00326

1994

NA

2.5

3027.8

11.33826541

345228.5

0.003204

1995

43.56236

2.48

5060.9

40.17269656

352646.2

0.003193

1996

NA

2.47

4851.5

4.316190869

367218.1

0.003244

1997

NA

2.46

6003

19.18207563

377830.8

0.003256

1998

NA

2.45

11984.3

49.90946488

388468.1

0.003267

1999

NA

2.44

16174

25.90391987

393107.2

0.003227

2000

35.98072

2.44

20201.8

19.93782732

412332

0.003303

2001

NA

2.43

44651.5

54.7567271

431783.2

0.003375

2002

NA

2.43

63371.2

29.53975939

451785.7

0.003447

2003

59.8

2.42

39685.5

59.68351161

495007.2

0.003687

2004

62.37

2.41

61787.4

35.77088533

527576

0.003836

2005

63.1

2.4

71886.4

14.04855439

561931.4

0.003989

2006

62.37

2.38

105590

31.91931054

595821.6

0.00413

2007

69.3

2.36

122398

13.73225053

561776.3

0.003803

2008

60.1

2.34

NA

NA

573176.4

0.003791

 

Sources:

CBN Statistical Bulleting Vol.18 Dec. 2007

W.H.O world health statistics (2009)

World Bank Group- World Development Indicator (WDI)