The elasticity of demand for public health expenditure in South Africa: a cointegration approach

To effectively evaluate the elasticity of demand for public health expenditure in South Africa, this study utilised a demand function approach to specify the functional relationship between public health expenditure, real GDP and other non-income explanatory variables. The study uses a double-log linear regression model to capture the elasticity of public health expenditure in respect of model explanatory variables. Empirical results suggest that public health expenditure, GDP, life expectancy and medical inflation were cointegrated over the period of the analysis. The findings also confirmed that the coefficients of these variables were statistically significant and of the expected signs. Specifically, the results reaffirm the importance of GDP and life expectancy as key determinants of health expenditure, both with an elasticity value above unity. The importance of medical inflation was also confirmed although its effect appears small.