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Government expenditure on health and economic growth in Botswana: Testing for cointegration and specification of deterministic components using the pantula principle

Author

Listed:
  • Narain Sinha

    (Former Professor of Economics, Department of Economics, University of Botswana, Gaborone, Botswana)

  • Strike Mbulawa

    (Assistant Professor, Graduate Studies, Faculty of Business & Accounting, Botho University, Botho Education Park, Kgale, Gaborone, Botswana)

Abstract

This study examines the relationship between government expenditure on health and economic growth in Botswana. It seeks to test the existence of cointegration and specification of the deterministic components with special reference to the Pantula Principle. This helps to overcome the shortfall of the method by Johansen, which may lead to spurious results by omitting the presence of deterministic components in the analysis. The cointegration approach is used and tested using three methods by Engle and Granger (1987) or EG, a procedure suggested by Johansen (1988) and error correction model (ECM) approach proposed by Granger(1988) and short-run analysis is made using the pairwise granger causality tests. Findings show that the correct model specification for testing long-run relationships consists of one cointegrating vector with a constant which is the most restrictive hypothesis according to the Pantula principle. Using the Johansen approach, total health expenditure and recurring health expenditure have a cointegration relationship with growth while development health expenditure and growth are not cointegrated. The ECM and the approach by EG confirm a weak and/or no cointegration between the variables. Growth has no effect on government expenditure on health in the short run, but a cointegration relationship suggests that it may marginally contribute to an increase in health expenditure over the long term. The study clarifies the correct model to test for cointegration and specification for the deterministic component. It confirms the existence of a healthcare expenditure-led growth hypothesis. This requires Botswana to design a policy that targets specific parts of recurrent and development health expenditure to support human capital development and influence future growth. Key Words: Health Care Expenditure, Growth, Cointegration, Pantula Principle

Suggested Citation

  • Narain Sinha & Strike Mbulawa, 2023. "Government expenditure on health and economic growth in Botswana: Testing for cointegration and specification of deterministic components using the pantula principle," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(2), pages 204-216, March.
    • Handle: RePEc:rbs:ijbrss:v:12:y:2023:i:2:p:204-216
    DOI: 10.20525/ijrbs.v12i2.2280
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