RESEARCH PROPOSAL

NAME CHITSA JENNIFER

REG NUMBER BO23168

PROGRAMME Bsc Economics

TOPIC The impact of public health care expenditure on

economic growth. The case of Zimbabwe from 1985 to
2010

CHAPTER ONE

INTRODUCTION

This study is carried out to assess the impact of public health care expenditure on
economic growth in Zimbabwe. A set of official data on public health care expenditure
and GDP levels is used. The data was examined by quantitative methods in order to
assess the impact of health care expenditure on GDP

The simplest definition of economic growth is an increase in real gross domestic product
(GDP) that is GDP adjusted for inflation. The economic growth rate of real GDP adjusted
for inflation. The economic growth rate of real GDP is the percentage change in real GDP
from one year to the next. We can express the rate growth in , for example the period
2004-2005 as follows

Growth rate of GDP=[GDP(2005)-GDP(2004] *100

GDP
Economic growth is the increase in the value of goods and services produced by an
economy. One way that output can increase is if there is an expansion in the inputs used
to produce it. There are five kinds of capital, human produced capital is called
manufactured capital to distinguish it from the other kinds of capital land and natural
resources are natural capital and all the skills and knowledge possessed by humans are
also a kind of capital-human capital. We also note the importance of social and financial
capital which both refers to institutional arrangements that make production possible.

Economists think about output as being generated according to a production function

which is a mathematical relation between various inputs and the level of output. In the
most general sense we might say that the output of an economy should be expressed as a
function of flows from all the different types of capital theat make production possible.
The inputs to the production function are commonly referred to as factors of production.
In the production functions most commonly used by economists, the factors that are
emphasized are manufactured capital and labour. Sometimes but not always, natural
resources also are included

One very influential and more specific model of economic growth was developed by
economist Robert Solow in 1957. In his model he assumed that an economy wide
production function can be written in the simple form:

Y= A K0,3 L0,7

where Y is aggregate output, K is quantitative measure of the size of the stock of

manufactured capital and L the quantity of labour used during the period of time. K and L
are the only factors of production explicitly included in the model. Both capital and
labour are needed for the production of output with the exponents in the equation
reflecting their relative contributions

A is called total factor productivity, and includes all contributions to total production not
already reflected in levels of K and L. Often total factor productivity has been interpreted
as reflecting the way in which technological innovation allows capital and labour to be
used in used effective and valuable ways

Economic growth and improved productivity are critical to a country’s future. It is only
through economic growth and improved productivity that hope and opportunity is
restored especially for Zimbabwe’s young people entering the workforce. According to
Mark (2002) economic growth reduces unemployment rate in an economy

Since economic growth is important, several researchers have studied both long and
short-term determinants of economic growth using explanations from the fields of
economics, political science, sociology and geography (Zipfel J 2002). Economic growth
play a critical role in the trend of entitlement spending which is counter-cyclical, rising as
a percentage of GDP during economic down turns and declining relative to GDP during
economic expansions. Economic growth is also important because tax revenues will
automatically grow factor than the economy because of a real bracket creep, where real
growth causes some tax payers to move into higher tax brackets, increasing incomes tax
revenue (Zipfel J, 2004)

Most studies have shown that a micro policy framework conducive to growth is a
necessity. Countries with strong macroeconomic fundamentals tend to grow faster than
those without them though there are many individual cases of both developing and
developed countries that suggests that satisfying only some of these conditions does not
result in faster growth. These macroeconomics fundaments can be broken into several
components for example took determinants of economic growth as inflation, labour force
goods import, import duties and public spending on education ( Dewan and Hussein
2001). Most of the researched work on determinants of economic growth gave credit to
investment, both in human capital and physical capital terms

The problem is emerging on human capital investment as a determinant of economic

growth because it consists of both education and health components. Most studies on
economic growth determinants examined effects of government spending on education
on a country’s growth and development. Most studies ignored health expenditure which
is another component of human capital. The aim of this study is to cover this gap and
treat the health aspect in macroeconomic analysis by introducing health capital to the
model of growth with the government which undertakes productive public health
expenditure

As part of the study it is also important to have an understanding of the general profile of
Zimbabwe in relation to the health sector. The following section gives an overview of the
country’s general profile

Background of the StudyGeneral Profile of the Country

Zimbabwe’s achievements in human capital terms put it near the top of developing
countries in terms of its health achievements and its space of attainment. Zimbabwe is
one of the few countries in Southern Africa that managed to increase government health
expenditure in real terms during the 1980s (Saunders, 1996). During the 1980s,
Zimbabwe’s economy grew briskly; real GDP growth averaged about 4% per year as
compared to a 2% GDP growth rate for its surrounding countries like Zambia. During the
early and mid- part of the decade, Zimbabwe’s exports were diversified and became
increasingly oriented towards manufacturing; debts were regularly repaid without the
need for rescheduling; a reasonable degree of food security was attained; and the
provision of educational and health services was drastically expanded (due to major
increases in government spending on social services). As a result of increased
government spending on health care provision in particular, health indicators showed
dramatic improvements during the 1980s: the infant mortality rate declined from 100 per
1 000 live births to 20 between 1980 and 1988; life expectancy increased from 56 to 64
years (Naiman and Watkins, 1999). Naiman and Watkins (1999) summarized the
achievements of the 1980s as: “The core of the government’s redistributive agenda was
through increased public expenditures on education, health and public sector
employment. During the 1980s, much was achieved both in terms of an expansion of
these expenditures and in terms of measurable indicators of
performance.” mentioned below

EXTERNAL RESOURCES FOR HEALTH (% OF TOTAL EXPENDITURE ON

HEALTH) IN ZIMBABWE

The following table contains the historical data for External resources for health (% of
total expenditure on health) in Zimbabwe. External resources for health are funds or
services in kind that are provided by entities not part of the country in question. The
resources may come from international organizations, other countries through bilateral
arrangements, or foreign nongovernmental organizations. These resources are part of
total health expenditure.

Year Percentage of total expenditure on health

2004 4,83
2005 11,64
2006 20,82
2007 17,34
2008 0,18

EXETRNAL RESOURCES FOR HEALTH (% OF TOTAL EXPENDITURE

ON HEALTH) IN ZIMBABWE.
HEALTH EXPENDITURE; PUBLIC (% OF TOTAL HEALTH EXPENDITURE) IN ZIMBABWE

The following table and graph show the historical data for Public Health expenditure (%
of total health expenditure) in Zimbabwe. Public health expenditure consists of recurrent
and capital spending from government (central and local) budgets, external borrowings
and grants (including donations from international agencies and nongovernmental
organizations), and social (or compulsory) health insurance funds. Total health
expenditure is the sum of public and private health expenditure. It covers the provision of
health services (preventive and curative), family planning activities, nutrition activities,
and emergency aid designated for health but does not include provision of water and
sanitation.

Years Health expenditure;% public( of total

 health expenditure)
2004 30.65
2005 40.93
2006 45.35
2007 48.72
2008 46.26

HEALTH EXPENDITURE; PUBLIC (% OF GOVERNMENT EXPENDITURE) IN ZIMBABWE

The following section shows the historical data for Health expenditure; public (% of
government expenditure) in Zimbabwe. Public health expenditure consists of recurrent
and capital spending from government (central and local) budgets, external borrowings
and grants (including donations from international agencies and nongovernmental
organizations), and social (or compulsory) health insurance funds. .

years Health expenditure public( % of

 government expenditure) in Zimbabwe
2004 8.89
2005 8.89
2006 8.89
2007 8.89
2008 8.89

HEALTH EXPENDITURE; PUBLIC (% OF GDP) IN ZIMBABWE

The following includes a graph with historical data for Health expenditure; public (% of
GDP) in Zimbabwe. Public health expenditure consists of recurrent and capital spending
from government (central and local) budgets, external borrowings and grants (including
donations from international agencies and nongovernmental organizations), and social (or
compulsory) health insurance funds.

years Public health care expenditure(% of GDP)

Year2004 2.33
Year2005 3.44
Year2006 4.06
Year2007 4.55
Year2008 4.14

JUSTIFICATION OF THE STUDY

Traditional studies on economic growth on developing economies have ignored the

influence of public health care expenditure in growth process .Since the discovery of the
importance of human capital in economic growth many researchers have the effects of
government expenditure on education on a country’s growth and development (capolupo
.2000.) .However evidence from other studies (Mushlan1962) suggests that human
capital consists of two components education and health .In this context health which is
another component of human capital has been largely ignored in the growth studies.

To date very few studies have incorporated public health care expenditure as an
explanatory in the growth model ( scheffler 2004). Those few studies were done for the
case of developed countries. Weil (2005) concluded that improving the health and
longevity of the poor is an important step towards economic development.

Very little work however has been done in the case of developing countries.
Among the noted few are Hari (2002) and Chie T.N (2005). Who tested of influence of
public health spending on economic growth in 14 developing major states of India and
Malawi respectively? They came up with conflicting evidence Hari found a positive
relationship between economic growth and public health care expenditure while Chie
found public expenditure on health to have no effect at all on economic growth

It is the aim of this study therefore to provide further empirical evidence on the impact of
public health care expenditure on eEconomic gGrowth in Zimbabwe from 1985 to 2010
other determinants of the economic growth will be considered although much be on
public health care expenditure

PROBLEM STATEMEMT
Since the publication of The Wwealth Oof Nnation by Adam Ssmith in 1776 the forces
driving economic growth have fascinated economists. The neoclaasical hypothesized that
the rate of capital investment plays a central role in economic growth. From the
traditional neoclassical growth prospective, the rate of economic growth depend on
change in the as well as the quality of the administrative and managerial resources
underlying the aggregate production (Soiow 1956 , Swan 1956). To date the concept of
economic growth is still taking a centre stage and it has become a subject of interest to
many as researchers are digging dipper to establish the driving economic growth and this
study is no exception.

HYPOTHESIS
H0 : Increase in health care expenditure increases economic growth in Zimbabwe
H1 : Increase in public health care expenditure has no effect on economic growth in
Zimbabwe

RESEARCH QUESTIONS

1 Does public health expenditure have an effect on GDP in Zimbabwe?What is the effect
of public health expenditure care on GDP?
2 What are the other factors that influence economic growth in Zimbabwe?
3 What percentage of total health care expenditure in Zimbabwe is public health care
expenditure?
4 What percentage of total GDP in Zimbabwe is health expenditure?
5 What percentage of government expenditure is public health care expenditure?

OBJECTIVES OF STUDY

1. To analyze the effects of public health care expenditure on the economic growth
process in Zimbabwe.

2. To investigate the other major determinants of economic growth with more emphasis
on the assessment of the impact of public health care expenditure on the economic
growth process in Zimbabwe
3. 3 To investigate the general profile of Zimbabwe in relation to health sector

SIGNFICANCE OF THE STUDY

The main aim of the study is to bring to light the effects of public care expenditure to
economic growth

To the economy

After realizing how much economic growth respond to changes in public health care
expenditure it is important in understanding what is happening on the public health sector
and resources can be allocated.

It helps in the designing of the policies that influence economic growth

To the public health sector

Knowing the effects of public health care expenditure of economic growth the public
health sector will be in a better position to decide policies that minimizes cost as well as
maintaining good health care services.

To the university

The research will provide literature or secondary data source for the library and will open
avenues for further study for other students and members of staff who may want to carry
out researches in this area.

To the student

The research is an eye-opener for the personal development and an opportunity to relate
theories learnt to the actual situation in the industry

Organization of the Study

The rest of the study is organized as follows: Chapter two reviews both theoretical and
empirical literature. The methodology and choice of variables are presented in chapter
three while estimation and interpretation of results is in chapter four. Finally, concluding
remarks, policy implications and recommendations, limitations and areas of further
research of this study are presented in chapter five.
 CHAPTER 3 : METHODOLOGY

INTRODUCTION

This chapter proceeds with the discussion on the methodology and model specification.
The researcher will highlight the research design. The study makes use of secondary data
collected from Zimbabwe National Statistics Agent (ZIMSTAT). Data for economic
growth was collected from ZIMSTAT National Account section and data on public health
care expenditure ZIMSTAT health statistics section.

THE MODEL

CONCEPTUAL FRAMEWORK OF THE MODEL

Several macro models in the Keynes-Tinbergen-Klein tradition have generally

concentrated on estimating the impact of aggregate output or employment on economic
growth in developing countries (Lau, 1978). In general, the studies have shown that
macro variables such as employment and aggregate output have a significant impact on
economic growth. This works through the distribution of income and relative prices. It is
through this transmission mechanism; according to Behrman (1990a), that investment in
health care has direct effect on economic growth through
labour productivity.
MODEL SPECIFICATION
The basic methodological approach and model follows the leads of Lucas (1988),
Kramer (1991), Mankiw et al (1992) and Gemmell (1996). Based on these studies the
model is specified as
ECG=   0 PHE   1 LF   2 NEP   3 FD   4 GFCF   5 PED   6 D1VA  e
where
ECG = economic growth measured as percentage change in GDP
PHE = percentage change in public health care expenditure
LF = percentage change in labour force
NEP = percentage change in nominal exports
FD = percentage change in foreign debt
GFCF = percentage change in gross fixed capital formation
PED = percentage change in public education expenditure
D1VA= economic crisis dummy
α’s = parameter coefficients to be estimated
e = error term

DESCRIPTION AND JUSTIFICATION OF VARIABLES

ECONOMIC GROWTH (ECG)

In all countries, economic performance is a measured by GDP growth and GDP is

standard and universal measure. Economic growth is calculated as a percentage change in
Gross Domestic Product (GDP). The gross domestic product variable is included in this
model because it reflects domestic productive capacity. A rise in output lead to higher
demand for goods produced in the economy. Investment becomes more profitable.
Healthy investors respond by increasing investment.

PUBLIC HEALTH CARE EXPENDITURE (PHE)

Public health care expenditure is therefore used to capture how much funds are channeled
to health and how big the investment in health is. Public health care expenditure is a good
proxy for the level of economic growth.

LABOUR FORCE (LF)

If the economy’s labour force is high and fully employed, the economy is likely to
produce more. Thus economic growth is positively related to labour force growth. High
unemployment rate affects the growth of the economy negatively.

PUBLIC EDUCATION EXPENDITURE (PED)

Public education Expenditure is seen as the engine for human capital investment in most
economies more of government expenditure is allocated to educatioN

NOMINAL EXPORTS (NEP)

Exports are a major source of economic growth, both directly because they are part of
production and indirectly as exports facilitate imports of goods, services and capital, and
thereby also of new ideas, knowledge and also technology. By encouraging specialization
according to comparative advantage, high and rising export levels enhance static and
dynamic efficiency and economic growth. The rapid expansion of exports relative to out-
put in the fast growing East Asian economies over the years, for instance, is hardly an
accident; it was export-led growth. Several studies in both developing and developed
economies (Awundu and Jaquet, 2002) show that exports are a vital source of economic
growth. So there is a positive relationship between exports and economic growth.

FOREIGN DEBT (FD)

Hypothesis posits that the accumulated external debt of a country acts as a tax on future
output and thus discourages private investment and therefore economic growth.
Analysts agree that poor investment performance and growth of many highly indebted
poor countries like Zimbabwe since the onset of global debt crisis in 1982 can be
attributed partly to the disincentive effect of their external debt burden. This phenomenon
is referred to as the debt overhang problem

GROSS FIXED CAPITAL FORMATION (GFCF)

Investment variable is used to analyse the possible differential impact that it has on
economic growth. It is an important component in the economy that needs to be given
necessary attention, since it raises long-term rate of economic growth. Khan and
Reinhart (1990) recognize the important role played by private investment in generating
economic growth. Studies by Greene and Villanueva (1991) also found a complementary
relationship between private and public investment in achieving better economic
performance. Investment is one of the major determinants of economic growth as it
enhances output through the creation of more employment and hence more output is
produced. A part of every additional income received by the additional worker employed
as a result of more investment expenditure is consumed and the other part is saved. This
continues until the initial amount invested is saved. As such, the relationship between
economic growth and gross fixed capital formation maybe described as a positive
association

Dummy variables D1VA

Dummy variables are included in the model to capture the effects of several polices in
specific time periods in Zimbabwe. D1VA is a dummy variable responsible for capturing
the effects of economic crisis, which takes the value of 1 in the years of economic crisis
from 2004-2008 and 0 other wise. The downturn of the economy spells disaster to
economic activities and consequently on economic growth. It is therefore postulated that
economic crisis and economic growth are negatively related; hence α9 is expected to be
negative.

DATA SOURCES AND TYPES

The study uses annual time series data covering the 1975 to 2005 period. The data
obtained from existing publications. The period chosen was long enough to analyze the
impact of public health care expenditure on economic growth taking into account other
growth variables. Data for GDP, public healthcare expenditure is obtained from
ZIMSTAT National Account

MATHEMATICAL TOOLS
This study utilizes single equation Ordinary Least Square (OLS) estimation technique.
The choice of this technique is due to its simplicity, convenience and it has been
successfully used by other similar studies. Additionally, the parameter estimates obtained
by using this technique are BLUE, thus, they are best, linear and unbiased estimators.
Stock (1987) has shown that the OLS estimators of the coefficients have a desirable
property known as super-consistency, thus provided the OLS assumptions are not
violated