HEALTH EXPENDITURE AND ECONOMIC COMPLEXITY: A PANEL GMM APPROACH FOR SELECTED AFRICAN COUNTRIES

Abstract

This study examines whether health expenditure affects economic complexity in selected African Countries (SACs) between 1998 and 2023.  Economic complexity, which refers to the capacity of a country to productively produce a large set of sophisticated economic activities, is vital for economic development. Health, as a fundamental element of human capital, plays an essential role in enhancing productivity and thereby fostering economic development. Using a panel Generalized Method of Moments (GMM), this study analyses data from 28 SACs. The findings reveal health expenditure has a significant but adverse influence on economic complexity. This implies that there may be no increase in economic complexity notwithstanding an increase in health expenditures in the short-run or may unconsciously reduce economic complexity. This negative effect contrasts with the positive influence in a-priori expectation on economic complexity, and thus, portrays the persistent nature of sophistication in SACs. Also, the study finds significant effects of other variables such as exports, institutional quality and gross capital formation on economic complexity, while foreign direct investment shows no substantial effect. The results emphasise the need for balanced investment in health and other sectors to achieve substantial economic complexity, and subsequently, sustainable economic development. The study recommends eradication of corruption in public health investment by strengthening institutions to function optimally. Consequently, funding to the health sector should be increased to enhance health outcomes and support economic complexity in SACs.