Does Environmental Quality Drive Health Spending? A Cross-Country Analysis

Abstract

The paper aims at empirically investigating the long-run explanatory power of environmental quality and energy intensity towards aggregate health spending volumes for a set of 108 countries. The significance of CO2-related pollution and energy intensity levels as long-run determinants of health spending is well-evident, as proven from modern pooled data  econometric procedures applied. Keeping in view the previous research on the subject, the sample set of countries is disaggregated into four distinct groups by following the World Bank’s country classification scheme i.e. low-income, lower-middle income, upper- middle income, and high-income countries. The hypothesized relationship between health spending, environmental pollution and energy intensity is empirically verified by employing the residual based (Pedroni cointegration test) and maximum likelihood based (Fisher- Johansen panel cointegration) test of co-integration. The obtained result reveal that plausible inter-relationship between carbon-related emissions and the consequent rise in health spending is found to be existing more prominently for upper-middle and high-income countries, relative to low- and lower-middle income countries, where the proposed relationships are found to be existing at less substantial levels.  For the former set of countries, the series bears a positive and statistically significant coefficient value of 1.14 and 0.05, respectively. Energy intensity on the other hand turns out to be even more important long-run determinant of health expenditure. For upper-middle- and high-income country groups, the series bears a negative coefficient value of 0.20 and 0.22, respectively, with high degree of statistical significance. The negative coefficient value of energy intensity series implies that managing the levels of energy intensity up to optimal levels may contribute positively to reducing the growing volumes of public and private health spending.