Quantifying Impacts of Macroeconomic and Non‐economic Factors on Public Health Expenditure: A Structural Time Series Model

Despite technological progress and society's changing lifestyles, preferences and attitudes towards public healthcare, little is known about the impact of these non‐economic factors (NEFs) on public health expenditure because existing studies have focused mainly on macroeconomic factors. This paper employs a structural time series model (STSM) to re‐examine and quantify the contributions of the key underlying drivers of public health expenditure while accounting for technological progress and other NEFs that have hitherto been ignored. The STSM captures the impact of NEFs via a stochastic trend component. The results of our application for Nigeria using data (1971–2013) sourced from the World Bank and Central Bank of Nigeria are robust to a battery of unit‐root and cointegration tests. We found that the key macroeconomic factors — economic output, current account and fiscal balance, official development assistance, oil revenue as well as urbanization and crude birth rate — are important drivers of public health expenditure. Technological progress and other NEFs have a non‐linear significant impact that varies with time and remains the largest contributor to annual change in public health expenditure. Policy implications from our findings are noted. Specifically, understanding and stabilizing both the macroeconomic and non‐economic factors are crucial to improve public health expenditure.