EFFECTS OF HEALTH CARE EXPENDITURE ON ECONOMIC GROWTH IN

KENYA

NYAMWEYA WEBSTER MACHOKA

A RESEARCH PROJECT PRESENTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE AWARD OF A BACHELOR OF ECONOMICS

DEGREE UNIVERSITY OF EMBU

UNIVERSITY OF EMBU

APRIL, 2023

i
DECLARATION
This is an original project that has never been submitted for a degree or diploma at another
university.

Signature …………………………………… Date ………………………………………….

Nyamweya Webster Machoka

D191/16859/2019

RECOMMENDATION
This work has been examined, passed, and submitted with approval of university supervisor.

Signature …………………………………… Date …………………………………………

Dr. Paul Mugambi

Lecturer

Department of Business and Economics

University of Embu

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DEDICATION
This research project is a dedication to my parents, who devoted themselves to offer me with
virtuous education and have always guided and braced me in all ways to the best that I can be.
The project is also dedicated to all my friend and fellow students who challenge and motivate me
to grow and be a better person and who have made the stay at Embu county to be precise and
worthwhile through their team spirit and encouragement.

iii
 ACKNOWLEDGEMENT
I would like to thank the Almighty God who has brought me all this far, offering me knowledge,
strength, vitality and good health that has enabled a efficacious accomplishment of this research
project. I am also greatly thankful to my supervisor, Dr Paul Mugambi for his support and
proper guideline on this research paper . Without his support and recommendation this paper
would not have been a success. I also acknowledge the special support from my friends who
sacrificed their time, energy, and resources to help and guide me in the various areas in this
research paper.

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TABLE OF CONTENTS
DECLARATION.......................................................................................................................................ii
RECOMMENDATION.............................................................................................................................ii
DEDICATION..........................................................................................................................................iii
ACKNOWLEDGEMENT........................................................................................................................iv
ABSTRACT...............................................................................................................................................v
TABLE OF CONTENTS.........................................................................................................................vi
LIST OF TABLES...................................................................................................................................vii
CHAPTER ONE........................................................................................................................................1
INTRODUCTION.....................................................................................................................................1
1.1 BACKGROUND..............................................................................................................................1
1.2 Statement of the problem................................................................................................................6
1.3 General objectives of the study.......................................................................................................7
1.3.1 Specific objectives of the study are;.........................................................................................7
1.4 Hypothesis........................................................................................................................................7
1.5 Significance of the study..................................................................................................................7
1.6 Scope of the study............................................................................................................................8
1.7 Limitations.......................................................................................................................................9
1.8 Assumptions of the study................................................................................................................9
1.9 Definition of terms.........................................................................................................................10
CHAPTER TWO.....................................................................................................................................11
LITERATURE REVIEW.......................................................................................................................11
2.1 Introduction...................................................................................................................................11
2.2 Empirical Literature.....................................................................................................................11
2.2 Theoretical Literature...................................................................................................................15
2.4 Conceptual framework..................................................................................................................18
CHAPTER THREE.................................................................................................................................19
RESEARCH METHODOLOGY...........................................................................................................19
3.1 Introduction...................................................................................................................................19
3.2 Research Design.............................................................................................................................19
3.3 Research instruments....................................................................................................................19
3.4 Data Collection...............................................................................................................................19

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 3.5 Diagnostic Tests.............................................................................................................................20
3.5.1 Normality Test........................................................................................................................20
3.5.2 Heteroscedasticity Test...........................................................................................................20
3.5.3 Multicollinearity.....................................................................................................................20
3.5.4 Serial Correlation...................................................................................................................21
3.5.5 Unit Root Test.........................................................................................................................21
3.6 Data Analysis.................................................................................................................................21
3.7 Analytical Model............................................................................................................................22
3.8 Ethical Consideration....................................................................................................................22
3.9 Data Analysis Matrix.....................................................................................................................23
DATA ANALYSIS RESULTS AND DISCUSSION.............................................................................24
4.1 Introduction...................................................................................................................................24
4.2 Descriptive Statistics and Normality Test....................................................................................24
Descriptive Statistics and Normality Test..................................................................................................25
4.3 Diagnostic Tests.............................................................................................................................26
4.3.1 Multicollinearity Test.............................................................................................................26
4.3.2Autocorrelation Test................................................................................................................26
Model Summaryb.....................................................................................................................................27
4.3.3 Heteroscedasticity Test...........................................................................................................27
4.4 Correlation Analysis......................................................................................................................29
4.5 Regression analysis........................................................................................................................30
4.5.1 model summary.......................................................................................................................30
Table 4. 5Regression Analysis.................................................................................................................30
4.5.2 Analysis of Variance...............................................................................................................31
SUMMARY, CONCLUSION, AND RECOMMENDATION..............................................................33
5.0 Introduction...................................................................................................................................33
5.1 Summary........................................................................................................................................33
5.3 Conclusion......................................................................................................................................34
5.4 Recommendation...........................................................................................................................34
5.5 Suggestions for Further Studies....................................................................................................35
REFERENCES..........................................................................................................................................36
APPENDICES..............................................................................................................................................38

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LIST OF TABLES

Table 3. 1 Data Analysis Matrix.................................................................................................23

Table 4. 1 Descriptive Statistics and Normality Test................................................................25

Table 4. 2 Multicollinearity Test................................................................................................26
Table 4. 3 Autocorrelation Test..................................................................................................27
Table 4. 4 Correlation Analysis..................................................................................................29
Table 4. 5Regression Analysis....................................................................................................30
Table 4. 6 Analysis of Variance..................................................................................................31
Table 4. 7 Regression Coefficients..............................................................................................32

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 ABBREVIATIONS

ANOVA -Analysis of Variance

ARDL- Autoregressive Distributed Lag

CBS -Central Bureau of Statistics

CBK-Central Bank of Kenya

EOQ- Economic Order Quality

KNBS-Kenya National Bureau of Statistics

GDP -Gross domestic product

GOK -Government of Kenya

HCE -Health Care Expenditure

KDHS -Kenya Demographic Health Survey

MDGs -Millennium Development Goals

MOH -Ministry of Health

MOPHS- Ministry of Public Health and Sanitation

NGO- Non-Governmental Organizations

NHA -National Health Accounts

KSH-Kenyan Shilling

OECD- Organization for Economic Co-operation and Development

OOP- Out of pocket

R&D- Research and Development

RH -Reproductive health

SSA -Sub-Saharan Africa

USD -United States dollar

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 ABSTRACT
In OECD nations, the impact of health care spending has been extensively studied; however, this
is not the case in emerging economies. Kenya, a developing nation, goes through the same thing.
This study's primary goal is to look into the consequences of Kenya's health care spending. This
research project examines the theoretical literature surrounding the Grossman model of public
expenditure theory, a dynamic theory on human capital. This paper also discusses the Newhouse
model and the endogenous growth model. The research on health care spending examines local
studies and empirical literature. A descriptive method was employed in the investigation, and
the researcher collected information from economic surveys, published statistics, and a strategy
from the Ministries of Finance and Health. Secondary data from economic surveys of Kenyan
health care spending were also utilized in this study. The secondary data gathered from 2000 to
2015 was analyzed using ratio analysis and several models. Various tests were carried out under
this research to test for; autocorrelation, heteroscedasticity, and multicollinearity. The study
showed that 54.8% of health care spending had an effect on the economic growth in Kenya
according to the independent variables analyzed. The other 45.2% showed the factors that affect
health care expenditure but were excluded in the model. The study also settles that the
explanatory variables chosen for this study, that is, population growth, government health
expenditure and the out-of-pocket expenditure influence to a large extent the health care
expenditure which is applied in determining the GDP of a country. The study found that
population growth, individual expenditure and government health spending were positively
correlated but had no significant influence on health care expenditure in Kenya.

1
 CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND

As one of the fundamental values, health is the basis for the quality of life for individuals, the
welfare of families, and the overall well-being of the community as a whole. In accordance with
the Grossman model  1972, a happy and healthy population is a prerequisite for a productive and
effective economy and the progress of the nation. In the macroeconomic literature, advancement
in human capital is designated as a crucial catalyst for economic growth and advancement. In
particular, the neoclassical endogenous growth model argues that an upsurge in human capital
(knowledge) has a favorable long-term impact on productivity per worker. Similarly, Grossman's
(1972) model of human capital suggests that quality of health profoundly impacts human capital
development via the extra working time and utility gained from good health. Thus, excellent
health enhances not only the consumption and productivity of people in the short run, but also
the return on investment in productive endeavors in the future. Therefore, it’s the role of the
government to ensure that there’s enough healthcare services provided to its citizens in order to
boost productivity both economically, socially, and financially. This will boost the economy of
the state. Also, through this research the government will get important information which will
aid in making wise decision on its health sector. It will also equip policy makers in the health
sector to plan, manage, and allocate health resources in a more equitable and efficient way in to
meet the health needs of its population

The general public and the government are quite concerned about the health spending's upward
trajectory. There is an abundance of information on the factors that influence healthcare outlay in
Organization for Economic Co-operation and Development, or OECD, countries (Wagstaff &
Moreno-Serra, 2009), but this is not the case in developing nations. The amount of funds that
various nations invest on health varies greatly between nations. Average per capita health
spending exceeds USD 3000 in high income countries, compared to USD 30 in resource-poor
nations. 64 nations in 2004 had per capita health expenses of less than $100. In relation to

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economic progress, health spending also varies greatly. According to Kea, Saxena, and Holly
(2011), some nations spend over 12 percent of their GDP on health care, while others spend only
3%.

In-depth research has been done on the connection between the economic growth and health
status in the existing literature. Results from numerous studies indicate a strong correlation
between health and economic growth. The importance of the health outcomes in the Millennium
Development Goals, or MDGs, is a result of the widespread acknowledgment of this linkage.
Actually, three of these objectives are specifically related to health, and the remaining four can
be seen as improving health. The channels that drive this link, though, remain contentious.
Although health spending is thought of as a way of improving a nation's health, the results vary
between countries and areas. As a result, in many countries with limited resources, financing for
health care expenditures (HCE) is becoming more crucial (Olaniyan Omikawa and Oyinlola,
2013).

Because health spending has such a significant opportunity cost, it must be justified whether or
not it is increased in these nations. In addition, Sub-Saharan Africa (SSA) is undoubtedly the
least developed area in the world, with all of the associated issues that entails. As a result, it is
still challenging for either households or the government to provide appropriate funds for health
care. Some scholars (Bic Haka and Gutema, 2008; Kaese, 2006) have suggested that this may be
the cause of the poor health outcomes in the area.

According to Erbil and Yetkiner (2009), if GDP is a function of health care spending, the direct
relationship between GDP and medical care expenditures (HCE) is one of reverse relationship.
One way to think about this reverse causality effect is to include health along with education as a
part of human capital. There are at least two ways in which GDP and HCE are related. First, if
health spending may be seen as an investment in human capital and since the accumulation of
health capital is a crucial driver of economic growth, an upsurge in health care spending (HCE)
must eventually result in an increase in GDP. In addition, rising healthcare costs linked to
successful health interventions boost labor supply and productivity, which eventually boosts
GDP.

Regressions on healthcare spending frequently include age structure of the people as a covariate.
Commonly used indicators are the proportion of the population that is active that is under 15

3
years old and over 65 or over 75. When these variables are incorporated into regression models
that explain per capita health spending, they typically have no statistical significance (Leu,
1986). Lu et al used HIV zero prevalence as a representation and discovered that it had no
significant link with general health care spending as a proportion of GDP. Epidemiology need is
sometimes included as a covariate using various deputations. In Africa, maternal death rate and
health spending did not significantly correlate, according to Murthy and Okunade's research
(Murthy and Okunade, 2009).

The first theory of economic growth centered around capital accumulation is the Harrod-Domar
model. In accordance with this concept, the rate of capital accumulation at a certain
technological level is inversely associated with the economic growth rate. Romer and Lucas'
(1986, 1992) and Lucas' (1988) endogenous growth model proposed that factors influencing
economic growth ought to be examined within the system. This sparked discussions on how
human capital may influence the growth rate. Therefore, in the 1990s, economists started to
place more emphasis on the role of human capital as a determinant of output and growth. Since
then, the relevance of health and education in economic growth has attracted considerable
attention (both empirical and theoretical ), and in the last ten years, a broad agreement emerged
that human capital accumulation is a significant factor of economic growth. As a result, it can be
suggested that a community's economic progress and level of health are closely related.
According to Grossman's human capital model from 1972, good health has a substantial impact
on the development of human capital since it increases working time and utility. As a result,
good health not only increases people's consumption and output in the near term, but also
increases the long-term benefits from investments in productive activities.

The hypothesis put forth by Mushkin in 1962 regarding the importance of expenditure on
healthcare in promoting economic growth. This theory holds that since health is a form of
capital, investing in it can increase earnings and encourage general economic growth. In reality,
the accumulation of human and physical capital is one way that health can influence economic
growth. An increase in the nation's health care expenditures would typically increase labor
productivity, quality of life, and overall welfare because healthcare is an essential element of
human capital investment.

4
According to Newhouse (2002), advancements in technology are a major influence on health
care spending (HCE). Depending on the kind of model being considered, a variety of stand-ins
have been utilized for developments in medical care technology. Cases of such representations in
cross-section research include the number of surgical procedures, the availability of particular
medical equipment, life expectancy, and infant mortality (Baker and Wheeler, 1998; Dreger and
Reimer, 2005). On the other hand, time-series models have employed a time index or time-
specific intercepts. It is reasonable to assume that panel data models have employed a
combination of these proxies (Dormont, Grignon, and Huber 2006). These research all came to
the same conclusion: the level of health spending was significantly influenced by changes in
medical practice and technology advancement. Because there is a dearth of trustworthy
information on technology advancements, literature from non-OECD nations has not taken
technological growth into account as a covariate.

The connection between foreign aid and national health spending in developing nations has
garnered a lot of attention lately. While health-specific Official Development Aid (ODA) had no
discernible effect on overall health expenses, Gaag and Stimac showed that it had a 0.138
elasticity against public health spending (Van der Gaag and Stimac, 2008). According to
Gardham and Letheren (2000), capitation systems typically resulted in lower expenditures than
fee-for-service systems.

The Total Health Expenditure (THE), as well-defined by the World Health Organization (WHO),
is the amount spent on both public and private health care. It comprises nutrition, family
planning and emergency health aid, nevertheless eliminates the provision of water and hygiene.
It also incorporates the providing of health services (both preventive and curative). According to
the RH/FP case study on health funding in Kenya, the Ministry of Health's estimated spending
increased from Ksh. 36 billion to Ksh. 47 billion between 2005/06 and 2009/10. This indicates a
growth of 56% overall. Nearly 8yrs after the government promised to raise this ratio to 15% by
accepting the Abuja Declaration, the expenditure as a ratio of the Government of Kenya's (GOK)
total budget remained low at 5.3% in 2009/2010. However, there are signs of recovery, as the
government aims to continuously raise allocation in the health segment in the two forthcoming
fiscal years, according to the mid-term expenditure framework for 2009/2010.

5
Economic growth is the increase in the market value of the products and services an economy
generates over time, accustomed for inflation. It is characteristically considered as the rate of
growth in real gross domestic product (GDP). The variables that follow can be used in national
income accounting to determine per capita output (economic growth): output per unit of labor
input (labor productivity), hours worked (intensity), participation rate (the percentage of the
workforce that in fact works), and demographics (the ratio of the working-age population to the
total population). The total of the rates of change of these four variables plus their respective
gross products is the rate of change of GDP per population. Bjork, 1999.

The main drivers of real per capita economic growth previously have been increases in
productivity (measured as the ratio of output value to labor input; Bjork, 1999; Wang Ping, 2014;
Kendrick, John W, 1961). Traditional theories of economic growth include the building up of
human and physical capital, an increase in productivity, and the production of new items as a
result of technological innovation. Lucas, 1988. In addition, specialization and the division of
labor are essential for increasing productivity. George Reisman, 1998.

Therefore, for a country to experience economic growth the health status of people is of great
concern. This is because the higher the amount of human and physical capital available, the
higher the rate of economic growth and development. A healthy population is a productive
population in terms of the labor input, and intensity, that is the working hours of the individuals.
Therefore, the government of Kenya should ensure that the health issues of its citizens is of first
concern in order to enhance a labor productive population which will act as a boost to the
economic growth of the country.

The Ministry of Health of Kenya (2011) claims that the Kenyan health sector receives money
from a variety of different sources, such as the public (government), private businesses,
households, and donors (counting non-governmental organizations and faith-based
organizations). The MOH, MOPHS, and other relevant government departments receive
budgetary funding from the GOK, which is used to support the health sector. The Ministry of
Finance establishes a three-year budget cap for each sector in Kenya with regard to government
spending. In practice, this implies that instead of presenting a budget proposal adjusted for actual
needs, the MOH develops a budget predicated on the amount that the Ministry of Finance has
stated it will allot for health expenditures. Through its District Health Management Board

6
(DHMB), the MOH then distributes the cash it has received. Lack of proper medications and
pharmaceuticals, a lack of staff, and poor upkeep of facilities, equipment, and transportation are
all symptoms of the health budget deficits (MOH, 2011).

Consequently, the aim of this study is to establish how health spending affects a country's ability
to expand economically, using Kenya as a case study. Kenya is heavily reliant on donor money,
many of which serve to enhance the government health budget's development allocation. 15.1%,
or KSH 7.1 million, of total Kenyan health expenditures in 2009–10 was covered by on–budget
foreign resources. Donor contributions increased Kenya's health budget for the fiscal year
2005/06 by 11.3%. Kenya's health industry has been more dependent on outside funding over
time.

As a result of Kenya's healthcare system's step-by-step structure, complex cases are forwarded to
a higher level. The system's holes are filled by privately owned and operated businesses.
Hospitals and private clinics, medical centers, subdivision hospitals, eldercare facilities, district
and remote hospitals, regional, and state hospitals make up the structure. The cost of healthcare
in SSA changes greatly over time and between nations. The advancement of health status in
every economy depends on health financing. At the macroeconomic level, the income level of
that nation has been linked to the amount and increase of health care spending. Thus, it is
presumable that the health sector's success will depend on how large the income elasticity of
healthcare is.

1.2 Statement of the problem

Health spending as a percentage of the total expenditures of the government has been rising
steadily (from 26 billion in 2007 to 50.37 billion in 2012), and this has been accompanied by an
abrupt rise in demand for health care. However, the demand for health is typically not met by the
increased governmental spending on it. The fact that Kenya's portion of PHCE is not closely
correlated with either the GDP per capita or the country's ability to pay for medical care is one
worry that has contributed to this inadequate allocation.

7
For both consumers and governments, the quickening growth of health care costs has become a
major worry. There is a wealth of literature on the factors that influence healthcare spending in
OECD nations, but this is not the case in developing nations. Kenya, a developing nation, goes
through the same thing. Even though Kenya spends a lot on health care, not everyone is covered.
To solve these issues, a broad sector approach is required. One needs to be aware of the factors
that influence Kenya's healthcare spending in order for this to be effective. This study sheds light
on this using the regional context. Hence, the study's goal is to determine what factors influence
the cost for healthcare in Kenya.

1.3 General objectives of the study

Finding the correlation between Kenya's GDP and health spending is the study's main objective.

1.3.1 Specific objectives of the study are;

To determine the effect of government health expenditure on the economic growth in
Kenya.

To determine the effect of out-of-pocket expenditure to the economic growth in Kenya.

To determine the effect of population growth on healthcare expenditure to the economic

growth in Kenya

1.4 Hypothesis
H01; There is no significant relationship between government health care expenditure to the
economic growth in Kenya.

H02; There is no significant relationship between out-of-pocket expenditure to the economic

growth in Kenya.

H03; There is no significant relationship between the population growth on health care
expenditure to the economic growth of Kenya

1.5 Significance of the study

8
The macroeconomic literature identifies human capital improvement as a key accelerator for
GDP expansion and improvement. According to the neoclassical endogenous growth model,
increasing human capital (knowledge) has a long-term beneficial influence on production per
worker. The added labor time and utility resulting from good health, according to Grossman's
human capital model, strongly impacts human capital development. As a result, good health not
merely increases people's consumption and output in the near term, but it also increases the long-
term benefits from investments in economic activities. Therefore, it’s the role of the government
to ensure that there’s enough healthcare services provided to its citizens in order to boost
productivity both economically, socially, and financially. This will boost the economy of the
state. Also, through this research the government will get important information which will aid in
making wise decision on its health sector. It will also equip policy makers in the health sector to
plan, manage, and allocate health resources in a more equitable and efficient way to meet the
health requirements of its people. Also, through this study the government will get important
data from the various parts of the country on health issues hence enabling it to act swiftly in
allocation of health facilities so as to maintain the health status of the individuals from the
various localities. Therefore, if the government takes immediate actions on the PHCE there will
be a positive increase in the country’s economic growth (GDP).

1.6 Scope of the study

Kenya's increasing healthcare demand is being challenged by a lack of funds. The daily standard
stated in a report on June 30, 2010, that monetary constraints are responsible for Kenya's
escalating health problems. The Ministry of Public Health highlighted that although the
government's funding for HCE had been rising at a steady pace of 5% over the years, it was
inadequate to meet the rising demand for medical care delivery, which has in turn contributed to
the worsening condition of the nation's healthcare parameters. The risk is that, as is now the case,
the ineffectiveness in PHCE will cause service delivery costs to rise over time, weakening the
long-term sustainability of healthcare finance. The study uses data from the Health Sector
Human Resource Strategy, 2014-2018 under the MOH. Also, data from world health
organization, (WHO) on Kenya is used. Also, data from the Kenya Economic Survey, 1982-
2012, Central Bank of Kenya Annual Reports, (1982-2012), and Statistical Abstracts, 1982-
2012, from the Kenya National Bureau of Statistics and the Ministry of Finance Public library is

9
used in this study. Also, data from the World Development Indicators, WDI was used in this
study. The data covered a time period of sixteen years, that is from 2000-2015.

1.7 Limitations
Due to unavailable data, the research limited to a sixteen-year data, that is, from 2000-2015.
Therefore, the finding of this study will only apply to a short period stated. The study also faces
another limitation on data collected due to limited time and resources which will facilitate its
findings. To overcome this limitation, I will compare data collected from various sources and
select those from credible sources only.

1.8 Assumptions of the study

The major assumption of this study is that the secondary data to be used will be accurate and that
the results of the data analysis can be used to fully explain the association between healthcare
expenditure, (HCE) and GDP growth.

1.9 Definition of terms

Health expenditure; these are all costs associated with prevention, development, care, nutrition,
and emergency programs that have the goal of enhancing and safeguarding health

Out-of-pocket, (OOP); this is direct payment of money by individual for medical services
which cannot be reimbursed by the insurance or a third-party.

Health insurance; is a kind of insurance coverage that covers the insured's medical and surgical
costs as well as allows the insured to receive reimbursement for costs related to illness or injury
or make payments to the care provider direct.

Economic growth; is the growth in inflation accustomed market value of the products and
services generated by the economy over time. It’s measured by the country’s gross domestic
product, (GDP)

Gross Domestic Product; is a monetary measurement of the total market value of all finished
goods and services generated over a specific time period, frequently yearly.

10
 CHAPTER TWO

LITERATURE REVIEW
2.1 Introduction

This section discourses the theoretic literature on the health care expenditure and also it analyses
the experimental literature on health care spending. This chapter also reviews the overview
literature and the conceptual framework of this study on health care expenditure.

2.2 Empirical Literature

Studies have established relationships between GDP and PHCE and have drawn various
conclusions from the findings. Several experiments must be conducted to assess the viability of
utilizing GDP as the standard for policy planning in order to establish unambiguously whether
GDP is the best deciding variable of PHCE.

Given that PHCE is a financial, annually, and social government organization that needs
adequate distribution throughout time, this proves that its expenditure factor is stochastic. In
other words, the current expenditures  might shift throughout time and in different places.
Though studies recommend using GDP per capita as the best method, variability is a problem.
Grossman (1972) created a model that made the relationship between GDP and PHCE certain in
order to address this problem. Considering human capital is an input to economic activity,
Grossman thought of PHCE as an venture in human capital. Therefore, a rise in health care
expenditure may result in a rise in GDP, and the opposite is true. Theoretically, nevertheless, this
established link between GDP and health care spending could pose significant hazards in
situations of crises like pandemics and political unrest. Nonetheless, if we consider GDP per
capita or the country's standard of living as an essential but insufficient element for determining
PHCE, we are able to accept the relationship, according to Grossman. Grossman's criterion for
either variable to be exogenous allows for the variable GDP per capita required but insufficient
role in this effect analysis. Thus, the study explored the degree to which current and lag values of
PHCE as a function of GDP may be utilized to forecast imminent values of GDP as a function of
PHCE. The results of the study revealed that the correlation between the two variables had a 0.87
coefficient. The context ultimately indicates that PHCE is 87% dependent on GDP per capita.

11
According to the Grossman model, health is neither a pure investment asset nor a pure
consumption good. Instead, health stock offers the agent two advantages: first, it increases utility
straight away, and second, it frees up more time for other tasks by keeping the agent healthy.

According to the endogenous growth model, exogenous and endogenous growth together
account for the majority of economic growth (Romer, P. M. 1994). According to the endogenous
growth theory, investments in human capital, innovation, and knowledge are major drivers of
economic growth. The idea also emphasizes how an economy based on knowledge will promote
positive externalities and boost the economy through its spillover effects. The endogenous
model's collective inability to explain conditional convergence reports in the empirical literature
is one of its primary weaknesses (Jeffrey D. and Warner, 1997).

The analysis of the factors that affect health care spending has been the subject of intense
discussion for the past 20 years, according to Newhouse (1977). The creation of a wide range of
research deciphering the underlying elements that impact health care cost, such as income, age,
temporal effects, and the accessibility of factors, has been facilitated by the increasingly huge
access of worldwide data on health care. The advancement of technology is another aspect that is
looked at. To separate the extent to which income, as determined by GDP, and other drivers,
such as demographics and the heterogeneity of health care inputs, underlie variations in health
expenditure, the majority of research, however, are based on cross-country data.

According to Di Matteo and Di Matteo (1998), limiting the analysis to a single country with
multiple healthcare jurisdictions could, in some cases, lessen the existing heterogeneity in health
care spending between nations that is caused by variations in the degree of health convergence
and internal design. In a similar vein, try to identify important regional specific effects by
looking at the factors that influence regional health expenditures in Italy. Both analyses
incorporate demographic and healthcare system variables of public health expenditures and use
jurisdiction-level data. Despite both theoretical and empirical studies demonstrate that the
hypothesis of spatial relationships might not be determined out, they do not investigate the level
to which public expenditure in a single jurisdiction is impacted by the expenditure spillovers
from associated jurisdictions (Revelli, 2002, 2001).

Schieber and Maeda evaluated the worldwide income elasticity in 1994 using cross section data
and found that governmental spending had a larger income elasticity than private spending

12
(Schieber & Maeda, 1999). In 1997, Musgrove, Zeramdini, and Carrin utilized cross-section data
from 191 countries and found that, depending on the data used, the income elasticity of health
expenditure ranged from 1.133 to 1.275. OOP income elasticity ranged from 0.884 to 1.033
while government health spending income elasticity ranged from 1.069 to 1.194. (2002)
Musgrove et al.

At both the personal and social levels, health and healthcare utilization have been proven to be
significantly influenced by education (Grossman, 2000). The relationship between health status
and healthcare utilization is projected to have an effect on and change health spending.
According to Lopez-Casanovas et al. (2005), the key factor in health spending after the 1990s is
not cost but rather volume of care.

In Kenya, factors influencing health insurance selection were the subject of a study by Kiplagat
(2011). According to his analysis, households' out-of-pocket medical expenses in Kenya account
for about 36% of all medical expenses. Large out-of-pocket expenses may cause consumers to
spend less on other products and services, which could lead to poverty for households. Health
insurance is currently viewed as one of the potential tools for lowering the depressing impacts of
high out-of-pocket medical expenses. There are numerous types of health prepayment systems in
Kenya notwithstanding the restricted coverage provided by health insurance. The utility
maximization hypothesis, on which the study was based, holds that people make decisions based
on which options provide the largest overall predicted utility. He fitted a multinomial logit model
using the Kenya Demographic Health Survey (KDHS) from 2008–2009, and came to the
conclusion that household size,  education level, employment status, and wealth index are
significant drivers of health insurance coverage and selection. Additionally, a lack of knowledge
keeps many people from signing up for any type of health insurance program.

A study on the effect of health aid spending on the mortality of infants in Kenya from 1980 to
2010 was conducted by Njenga (2011). Since it is intended to supply the funds and financial
incentives for operating health systems, health care financing is an important factor in
determining how well a health system performs. It is stated that understanding health care
finance aids in the development of government policy by allowing for an evaluation of how
those policies will affect healthcare delivery systems and overall health standards in a nation.
Between 1980 and 2010, the study looked at the effect of health aid spending on child mortality

13
in Kenya. It also found additional factors that affect child mortality in Kenya. The study used 30-
year time series data, semi-log regression analysis on the model, and error-correction
methodology on the model to guard against erroneous regression results. According to the study,
Kenya's under-five mortality is influenced by overall health aid spending. Density and
immunization coverage were found to have an impact on under-five mortality in Kenya, among
other things. As a result of the potential synergy between poor health and weak capacities to
combat poverty, the aforementioned research concluded that: Poor health and disparities in
health status were especially noteworthy. The wealth index, employment position, education
level, and household size are crucial variables that affect who own and chooses health insurance.
Kenya's under-five mortality rate is influenced by overall health aid spending. Density and
vaccination rates have also been proven to have an impact on under-five mortality in Kenya.

A few investigations have been done to examine overall national health funding or expenditures
from all sources and to relate them to their various applications, according to Okung’s study of
Equality in health care finance and expenditure in Kenya from 2005. The study also found that
not only had equity in health care funding and spending in Kenya received less attention, but that
there had also been very little research done to determine how equitable the distribution of public
health care financing actually is. However, the public health sector's ability to quickly and fully
address disparities in health care finance and spending has the potential to drastically halt the
deterioration of health indices. This study aimed to determine how well the health care facilities
were distributed fairly among the various regions by analyzing national health expenditures in
Kenya using the National Health Accounts (NHA) framework. The study developed
distributional estimates of who pays under each funding method and who gets the benefits of
government health subsidies using data on health status and other socioeconomic factors. The
findings indicated that there are significant discrepancies in Kenya's allocation of resources for
health care. It was highlighted that actual spending is lower than budgeted amounts. The formula
used to allocate resources now does not favor the poorer provinces. The analysis found that the
drop in the annual real per capita government budget to the health sector has been a significant
factor in the delayed advancement toward equity.

14
2.2 Theoretical Literature

Allocating spending on public healthcare might be determined by a variety of factors that come
from economics well as politics. When Buchanan's theory of healthcare expenditures first
appeared in 1965, economists were concerned that if the government met all of the public's
healthcare needs, there would be an excessive demand for healthcare, which could then result in
an excessive amount of spending by government on healthcare. According to Buchanan's theory,
which was inspired by the aforementioned fear, political decisions about public spending should
be made independently of demand so that inefficiency is observed not as a result of a lack of
supply but rather as a result of a reduced level of quality in the form of traffic jams,
infrastructure, an uneven distribution of hospital staff (doctors and nurses), and other factors.

This idea almost perfectly captures the state of health in Kenya today, where the lack of funding
for PHCE is not the cause of healthcare inefficiencies, but rather the poor quality of the
healthcare systems nationwide.

The risk associated with the aforementioned hypothesis is that higher-quality healthcare systems
will arise from the private sector, which will then result in high healthcare prices and make
healthcare disproportionate for the general population—a concept that runs counter to the
theory's intended outcome. Politics will inevitably have a role in decisions on how to pay for
healthcare, as opposed to supply and demand being determined by price alone. Therefore, as
studies (Jowett (1999), Leu (1986), and Bonsanquet (1986) have shown, political decisions about
healthcare spending require an analytical style of action that is frequently indicated by GDP
estimates.

It is obvious to many academics, notably Leu (1986), that the wealthier (per head) a country is,
the more it invests on healthcare per person and the larger the percentage of its overall income
that is allocated to healthcare. It is assumed that the share of GDP allocated to healthcare will not
always be high in developing nations like Kenya, where the World Bank's figures reveal that
Kenya's nominal GDP ranks 70th out of 154. It is more possible that a nation like Kenya will
choose to reduce the expense of public healthcare, but this is not a logical worldview. Any
healthcare system's ultimate goal is to maximize costs considering the resources at hand and to

15
balance the resources' values to ensure they are equitable while still providing citizens with a
decent standard of living.

The work of A. J. Culyer (1989), in the study of cost control of healthcare in Europe, the
research that sought to establish the optimal approach to assess healthcare expenditures in a
nation whose health distribution systems are primarily community and not private discovered
that that to deal with the challenge of designating sufficient resources that are just and feasible to
the healthcare systems of all nations, given that private care is scarce and there is no consensus
of the viability of such a system, private care should be considered as a small portion of total As
income per head is prone to be tied to policies that restrict PHCE, the study concluded that
income per head (GDP per capita) is the best predictor of public healthcare expenditure. Thus,
GDP per capita is the most precise estimating variable for PHCE.

The costing of PHCE has also been the subject of several investigations. What governs the
amount of capitals a country dedicates to medical care, according to Newhouse (1977) in the
research of medical care expenditure that tried to provide an answer to this question?(Journal of
Human Resources, Volume 12, No. 1) found that a high GDP does not necessarily indicate that
doctors will be paid more or that the country's health indicators will improve; rather, it indicates
more distribution of money to medical resources and enhanced aspects of medical care within a
nation. These elements of medical care are: a) upgraded ambulant services that lessen symptoms
like pain and anxiety; and b) better policymaking on the part of doctors, who can do as many
state financed tests as they see appropriate. As has been observed, the Kenyan context/situation,
where a doctor's demand for higher compensation drives choices for growth in PHCE
allocations, does not necessarily improve the country's healthcare indices. Instead, it diverts
resources away from care. If PHCE is mostly explained by GDP per capita, this will help a
nation like Kenya identify ways to ration verdicts in line with its revenue. It is crucial to
understand that effective planning for PHCE does not necessitate a steady rise in provision but
rather an efficient financial plan that takes the nation's income into account.

Later research on the pertinent factors to take into account when determining a nation's spending
on medical care have been established. According to Abel Smith B (1994), in the study of health
policy planning and financing for America, it was discovered that the emphasis paid to a
community's healthcare system directly impacts its state of health. It was also discovered that the

16
country's public healthcare spending outlay is more effective if it correlates to the overall
economic growth per capita of the nation. According to certain empirical findings from the
study, there is a significant link between GDP per capita and PHCE (0.85), hence using GDP to
measure PHCE makes it much simpler to justify expenditure outlays.

The literature on public health care expenditures points us in the direction of using GDP as the
key factor in selecting how to allocate PHCE. It is crucial to keep this way of thinking in mind.

2.4 Conceptual framework

This is a diagrammatical representation that tries to explain the connection between the
predetermined variable, health care expenditure and the explanatory variable, the economic
growth of a country. This is as shown in the figure below;

17
 Independent variable Dependent variable

Government Government
Health care policies Economic growth
expenditure

Out-of-
Pocket

Population growth

CHAPTER THREE

RESEARCH METHODOLOGY
3.1 Introduction
The study's techniques and processes are highlighted in this chapter. It consists of the parts that
follow: The survey research design is presented in part 3.2, the population and sample sizes are

18
presented in section 3.3, the data collection tools are presented in part 3.4, and the data analysis,
conceptual and analytical models, and data presentation techniques are shown in part 3.5.

3.2 Research Design

The Central Bureau of Statistics (CBS), the Ministry of Health, and official sources provided the
researcher with the data for this descriptive study, which she conducted. Data from the
Population Census Center, economic surveys, and the Ministry of Health's strategy plan were
some other sources.

The study used a quantitative approach to analyze the financial statements utilizing a variety of
models and ratios in order to give primarily quantitative data. Quantitative data made it possible
to analyze the study problem in greater detail.

3.3 Research instruments

For a period of 30 years, from 1983 to 2012, from the nation's economic survey, this study
employed secondary data that was gathered from various sources, as indicated above. This is so
since the data is examined yearly. The study applied time series data gathered from official
publications in the Ministries of Finance and Planning, the Central Bureau of Statistics (CBS),
the Ministry of Health, and the economic surveys.

3.4 Data Collection

According to Borg and Gall (1989), a population is everyone who is a part of a real or fabricated
group of individuals, occasions, or objects to which a researcher seeks to use the results of the
research study. Cooper and Schindler (2000) define population as the complete collection of
people or things that researchers are intrigued in extrapolating the findings to.

The nation's economic survey was employed to collect secondary data for this study, which
covered the 30-year period from 1983 to 2012, from the various sources previously mentioned.
This is due to the data being examined every year. Time series data from official publications
from the Ministries of Finance and Planning, the Central Bureau of Statistics (CBS), the Ministry
of Health, and economic surveys were used in the study.

19
3.5 Diagnostic Tests

To determine whether the data conformed with the assumptions of the multiple regression model,
diagnostic tests were run on it. This could guarantee the accuracy of the findings. The study
makes use of unit diagnostic tests and tests for normalcy, heteroscedasticity, multicollinearity,
and serial correlation.

3.5.1 Normality Test

The purpose of the test is to determine whether or not the distribution of the data is normal. The
appropriate connection among the study's variables might not be shown if the data is not
normally distributed (Garson, 2012). The Shapiro-Wilk test was used in the study to check for
normality. The test works best with a sample size of under 50. The limited number of samples
being examined influences the test selection. If the significance value for the Shapiro-Wilk test is
less than the P-Value statistic test of 0.05, the data is considered to be normal. If the number is
less than 0.05, the data are regularly distributed.

3.5.2 Heteroscedasticity Test

Heteroscedasticity is defined as the absence of a constant error variance Gujarati (2005). The
regression residual value of the independent variables were used in the study's application of the
Breusch-Pagan/Cook-Weisberg test. If the significant results exceed the P-Value statistic test of
0.05, then there is no heteroscedasticity.

3.5.3 Multicollinearity

Multicollinearity exists, according to Kothari (2004), if there is a correlation between the

independent variables. Consequently, independent variables should be independently determined
from one another. Cooper and Schindler (2006) argue that the presence of multicollinearity
renders significance tests inaccurate due to the distortion of regression coefficients. The Variance

20
Inflation Factor (VIF) was utilized to determine the presence of multicollinearity. If VIF is less
than 5, then multicollinearity does not exist (Gujarati, 2003).

3.5.4 Serial Correlation

Gujarati, (2003) posits that the serial correlation exists if an error term of one period is correlated
to that of the previous periods. The study uses the Wooldridge-Drucker test to test the existence
of autocorrelation. Data has no serial correlation if P-Value is greater than the value at 5 % level
of significance.

3.5.5 Unit Root Test

In order to confirm that the variables are stationary, a unit root test is performed. According to
Gujarati, (2003), a data structure does not have a unit root if its variance, mean
and autocorrelation remain unchanged over time. According to Wooldridge (2012), stationarity
guarantees that the regression results are accurate, resulting in a reliable regression result. The
Augmented Dickey Fuller (ADF) unit root test was used in the study to assess if unit roots were
present in the data. The presence of the unit root indicates that the data is not stationary if the P-
Value is higher than 5% level of significance.

3.6 Data Analysis

In order to analyze the data, the study use inferential as well as descriptive statistics. The
acquired data was first sorted, categorised, and aggregated. Tables and inferential statistics were
used to construct and tabulate descriptive statistics for every variable, such as mean and standard
deviation. The statistical analysis of the data was done using the SPSS program. Regression and
correlation analysis, two types of inferential statistics, were used to analyze the data. The
researcher employed regression analysis to determine the impact of government health spending,
population growth, and out-of-pocket spending on Kenya's economic growth. The impact was
then investigated using a student t-test at a 95% confidence level.

3.7 Analytical Model

The study implemented a multiple regression model to establish the effect of the independent
variables, that is, population growth, general government expenditure and out-of-pocket
expenditure to the economic growth of a country. The general form of a multiple regression
model is given as follows;

21
 y=β o + β 1 x1 + β 2 x 2 + β 3 x 3 +ε

Where;

Y= Dependent variable, Gross Domestic Product, GDP

X1, X2, & X3= Independent variable used in the determination of economic growth

X1= Domestic General Government Health Expenditure

X2=Population growth

X3=Out-of-Pocket expenditure

β 0=Intercept term measuring level of economic growth when health care is held constant

β 1 β 2 β3 =Coefficient of independent variables measuring the responsiveness of economic

growth due to a percentage
change in the independent variables

ε =Stochastic term (error term) that captures other variables that also affect economic
growth but are not included in the model.

3.8 Ethical Consideration

The overall principles involved in research ethics was taken utterly during the study period. The
access of data from the identified institutions from which the collection of the data for the study
was done after a permission. The researcher sought permission from the various sources to
acquire data and record. Ethical issues like faulty data gathering procedures, misleading
authorship fabrication and sneaky publication procedures was observed to produce reliable
results since misleading reporting is unethical.

3.9 Data Analysis Matrix

Table 3. 1 Data Analysis Matrix

Hypothesis Independent Dependent Expected sign Test statistic

variable variable
H01: there is no Government Real GDP +ve t-Statistic

22
statistically health expenditure
significant effect
of government
health expenditure
on real GDP in
Kenya.

H02: there is no Out-of-Pocket Real GDP -ve t-Statistic

statistically expenditure
significant effect
of out-of-pocket
expenditure on
real GDP in
Kenya.

H03: There is no Population Real GDP -ve t-Statistic

statistically growth
significant effect
of population
growth on real
GDP in Kenya.

CHAPTER FOUR

23
 DATA ANALYSIS RESULTS AND DISCUSSION
4.1 Introduction
This section concentrates on a systematic examination of data collected from The World
Development Indicators, WDI, The Central Bank of Kenya, CBK, The Kenya National Bureau
of Statistics, KNBS and data from other sources to establish the effect of health care expenditure
on the economic growth of Kenya. By the use of correlation analysis, descriptive statistics, and
regression analysis, the outcomes of the study were explained table forms as shown in the
following section.

4.2 Descriptive Statistics and Normality Test

The sample data's normality was examined through descriptive statistics. When the range of the
skewness statistic is between 3, the data is deemed to be normal and impartial. The normality of
the data was assessed using the Skewness Goodness of Fit test. To evaluate whether the
frequency curve of the distribution is symmetric and not stretched more to one end than the
other, which would show that the data is not normal, skewness was applied.

Table 4. 1 Descriptive Statistics and Normality Test

24
 Descriptive Statistics and Normality Test
N Minimu Maximu Mean Skewness
m m
Statisti Statistic Statistic Statistic Statistic Std.
c Error
Population growth 16 12.53 22.34 16.0806 .768 .564

Government health expenditure 16 24.55 41.54 33.3088 -.154 .564

Out-of-Pocket expenditure 16 28.84 46.83 37.7706 .191 .564

Gross Domestic Product 16 .23 8.41 4.4856 -.589 .564

Valid N (listwise) 16

This results on the table 4.2 shows that the mean value of GDP was 4.4856 with the minimum
and maximum values of 0.23 and 8.41 respectively whereas the mean value of the population
growth is 16.0806 with the minimum and maximum values being 12.53 and 22.34respectively.
The result also indicate that the mean of out-of-pocket expenditure is 37.7706 with the minimum
and maximum values being 28.84 and 46.83 respectively also the result indicates the mean value
of government health expenditure was 33.3088 with the minimum and maximum values being
24.55 and 41.54 respectively. The skewness values lie in the range ±3 indicating that the data is
normally distributed. If the skewness value is greater than ±3, it indicates that the data is not
normally distributed.

4.3 Diagnostic Tests

4.3.1 Multicollinearity Test
The Variance Inflation Factors, (VIF) were used to assess multicollinearity. The results are
shown in figure 4.2 below.

25
Table 4. 2 Multicollinearity Test

Coefficients
Model Collinearity Statistics

Tolerance VIF

Population growth .838 1.193

1 Government health
.755 1.325
expenditure
Out-of-Pocket expenditure .778 1.286
a. Dependent Variable: Gross Domestic Product, GDP

The results from table 4.2, population growth, government health expenditure and out-of-pocket
expenditure had no multicollinearity. This is because the variables had Variance Inflation
Factors, VIFs of less than 10. A VIFs greater than 10 will indicate multicollinearity between the
independent variables.

4.3.2Autocorrelation Test
If the variances of the error terms have a relationship, there is an autocorrelation problem that
causes the parameter estimations to be biased and inconsistent. Durbin Watson (DW) was used
to find autocorrelation. Positive autocorrelation is implied by a DW of zero, while a DW of four
indicates a significant level of negative correlation. The independent variables are not correlated
if the DW value is between 2 and 2.5. The autocorrelation test results are shown in Table 4.3.

Table 4. 3 Autocorrelation Test

26
 Model Summary
Model R R Square Adjusted R Std. Error of Durbin-Watson
Square the Estimate

1 .741a .548 .436 1.81149 1.830

a. Predictors: (Constant), out-of-pocket, population growth, health expenditure
b. Dependent Variable: Gross Domestic Product, GDP

Table 4.3 shows the model has a Durbin Watson value of 1.830. As this value lies between 0 and
2, it shows that there is a weak autocorrelation in the model. Therefore, the Durbin Watson test
disclosed that there was a weak serial correlation.

4.3.3 Heteroscedasticity Test

Heteroscedasticity arises when the variance of the error term does not remain constant across all
periods and independent variables. Heteroscedasticity violates the assumption of classical linear
regression model which presumes that the variance of the error term remains continuous.
Heteroscedasticity can also happen due to omission of important variables from the model. In
this study, heteroscedasticity was identified through a visual examination of residual plots. The
graph depicts regression-standardized residuals versus regression-standardized predicted
variables. When the width of the residuals rises or falls as the predicted variables rise,
heteroscedasticity is prevalent. The residual plot in the figure listed below reveals that the
clusters of points are distributed roughly on the same width, resulting in a concentration of points
along the center and the absence of heteroscedasticity.

27
The figure illustrates that the plotted points meet at definite points, hence indicating the
nonappearance of heteroscedasticity and that the assumption of the similarity of factors has not
been violated.

28
4.4 Correlation Analysis
Table 4.4 shows the findings of correlations analysis, that demonstrates the strength of the
correlation amongst the study factors.

Table 4. 4 Correlation Analysis

Correlations
Population Government Out-of-pocket Gross
growth health expenditure Domestic
expenditure Product, GDP
Pearson
1 .359 .320 -.498*
Population Correlation
growth Sig. (2-tailed) .172 .227 .050
N 16 16 16 16
Pearson
Government .359 1 .438 -.210
Correlation
health
Sig. (2-tailed) .172 .090 .435
expenditure
N 16 16 16 16
Pearson
.320 .438 1 -.654**
Out-of-Pocket Correlation
expenditure Sig. (2-tailed) .227 .090 .006
N 16 16 16 16
Pearson
-.498* -.210 -.654** 1
Gross domestic Correlation
product Sig. (2-tailed) .050 .435 .006
N 16 16 16 16
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).

29
There is a robust and positive relationship among the government health expenditure (0.4) with
p-value of 0.172>0.05 thus it’s not statistically significant, out-of-pocket expenditure (0.32) with
a p-value of 0.227>0.05 therefore not statistically significant.

4.5 Regression analysis

In order to find out the correlation among the independent variables, that is, population growth,
out-of-pocket expenditure, and government health expenditure and the dependent variable, that
is, GDP the regression model was utilized fully.

4.5.1 model summary

Table 4. 5Regression Analysis

Model Summary
Model R R Square Adjusted R Std. Error of Durbin-
Square the Estimate Watson

1 .741a .548 .436 1.81149 1.830

a. Predictors: (Constant), out-of-pocket, population growth, government health expenditure
b. Dependent Variable: gross domestic product, GDP

R square (coefficient of determination) is 0.548, indicating that independent factors (out-of-

pocket expenditure, population growth, and government health expenditure) account for 54.8%
of the variations in the dependent factor (GDP) as shown in table 4.6. The remaining 45.2% of
the variance is accounted for by factors not taken into account in the study and the error
component. The Durbin Watson statistic of 1.83 is between the suggested ranges of 1.5 and 2.5,
indicating that there was no autocorrelation between the variables of the study.
4.5.2 Analysis of Variance
Table 4.6 shows the analysis of variance results
Table 4. 6 Analysis of Variance

30
 ANOVAa
Model Sum of Df Mean Square F Sig.
Squares
Regression 47.831 3 15.944 4.859 .019b
1 Residual 39.378 12 3.282
Total 87.209 15
a. Dependent Variable: gross domestic product
b. Predictors: (Constant), out-of-pocket, population growth, government health
expenditure

The significance value is 0.019 which is less than the p-value 0.05. This suggests that the model
was statistically significant in forecasting how population growth, out-of-pocket expenditure, and
government health expenditure affect the gross domestic product, GDP of a country. The
significance of the relationship between the dependent variable and the independent variables
was indicated by the p-value of 0.019. At the 95% confidence level, a p-value less than 0.05 was
taken as a metric of statistical significance, whereas a p-value greater than 0.05 indicates a
statistically insignificant relationship between the variables, i.e., the predetermined and
exogenous variables.

31
4.5.3 Regression Coefficients
Table 4. 7 Regression Coefficients

Coefficients
Model Unstandardized Standardized t Sig.
Coefficients Coefficients
B Std. Error Beta

(Constant) 16.866 3.991 4.226 .001

Population growth -.316 .181 -.369 -1.742 .107

1
Health expenditure .093 .107 .194 .869 .402

Out-of-pocket expenditure -.275 .098 -.620 -2.820 .015

a. Dependent Variable: Gross Domestic Product, GDP

From the results from table 4.8, its evident that only out-of-pocket expenditure produced a
positive and statistically significant value for this study, (t-value of, -2.820, p-
value=0.015<0.05). Population growth and government health expenditure were depicted to be
statistically insignificant as proved by t-values of -1.742 and 0.869 respectively with p-
value>0.05, that is 0.107 and 0.402 respectively.

This led to the following regression equation;

Y=16.866-0.316X1+0.093X2-0.275X3

Where,

Y=Economic Growth, GDP

X1=Population Growth

X2=Health Expenditure

X3=Out-Of-Pocket

From the estimated regression model above, the constant=16.866 displays that if the independent
variables were rated at zero, then GDP=16.866.

32
 CHAPTER FIVE

SUMMARY, CONCLUSION, AND RECOMMENDATION

5.0 Introduction
This chapter reviews the results of the study as per the study aims. This chapter also gives
inferences, and limitations met throughout the research period. This section also explicates
policy recommendation that policy makers can execute on the health sector in order to enhance
economic growth in Kenya. Finally, the chapter presents the suggestion for further studies which
will be important for upcoming researchers.

5.1 Summary
The research study was aimed at establishing the relationship between the health care
expenditure and the economic growth, GDP of a country, Kenya. The New house model and the
endogenous growth model laid the foundation for this study. The study employed the descriptive
research design to analyze the data obtained. The study used a descriptive research design
whereby secondary data from the World Bank, WB under the World Development Indicators,
WDI was used which covered a period of 16 years, (2000-2015). Also, data from the Central
Bank of Kenya, CBK was used. Other sources of data include; the Kenya National Bureau of
Statistics, KNBS, Ministry of Health, MOH, and the Central Bureau of Statistics, CBS. The data
was analyzed using the SPSS and EViews software.

From the result of correlation, it showed a strong and positive correlation between health care
expenditure and out-of-pocket expenditure to economic growth but was not statistically
significant since their p-values are larger than 0.05.

The coefficient of determination, R-square value was 0.548 which means that 54.8% of the
health expenditure had an effect on the GDP of Kenya according to the independent variables
analysed. The other 45.2% presents the variations in health care that are associated with other
factors not covered in this research.

The regression result showed that when all the independent variables designated for the study
have zero value, GDP of a nation will be equal to 16.866.

33
5.2 Conclusion
As a conclusion of the study the research concluded that GDP was not significantly affected by
the independent variables, that is, out-of-pocket expenditure and government health expenditure.
Therefore, the study concluded that an increase in government health expenditure and out-of-
pocket expenditure had a positive correlation effect to the health care expenditure. This will
lower the economic growth of a country meaning that increase in government spending will
automatically lead to slow growth of the economy. Also when people spend on health care out of
their income, they reduce savings and investment. This lowers the rate of growth of a country.

The study also concludes that the independent variables selected for this study, that is, population
growth, government health expenditure and the out-of-pocket expenditure influence to a large
extent the health care expenditure which is used in determining the GDP of a country. Its
therefore sufficient to conclude that these variables significantly affected health care expenditure
as shown by the R-square value of 54.8% from the analysis of variance summary table, ANOVA
Summary table 4.7. the other 45.2% indicates the variables that affect economic growth through
the health care expenditure but are not included in the model.

5.3 Recommendation
The researcher concluded that population growth is not statistically significant and its negatively
correlated to economic growth. Therefore, population growth affects economic growth
negatively meaning that the higher the population growth the more the demand for health care
hence need for the government to allocate more of its revenue in the health sector. This will
lower economic development. Therefore, the study recommends the government to take control
on its population in order to enhance economic growth.

Also, the study concluded that out-of-pocket expenditure is not statistically significant and its
negatively correlated to the economic growth of a country hence it affects economic growth in a
negative way. The more the amount people spend on their health the less the savings and
investment. This leads to low government revenue collection which leads to limited funds for
development project and provision of public goods. This discourages economic growth and
therefore the study recommends the government to encourage its citizens to have health
insurance cover so as to cater for their health in case of emergencies so as to reduce out-of-

34
pocket expenditure. The government is also recommended to provide for its citizens affordable
health services. This will boost a nation’s economic growth.

The government health care expenditure was found to be positively correlated and statistically
significant to the economic growth of a country. This shows that an increase in government
health care expenditure leads to an increase on economic growth. Therefore, the study
recommends the government to increase its health care expenditure which in turn will encourage
economic growth of a country.

5.4 Suggestions for Further Studies

Future researches on the topic could consider other independent variables that affect economic
growth through health care. This is because the study found out that population growth,
government health expenditure, and out-of-pocket expenditure accounted for 54.8% of the
variations of economic growth while the other 45.2% was accounted for by the other variables
which were excluded in the model.

35
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Grossman, M. (2000): The human capital model. In Handbook of Health Economics, Vol. 1,
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APPENDICES
Appendix 1; Data Collection Sheet

37
Gross Domestic Population Growth Out-Of-Pocket Government Health
Product Expenditure Expenditure
0.60 22.34 46.83 37.02
3.78 19.67 46.23 38.00
0.55 18.45 44.79 39.93
2.93 16.57 38.54 41.54
5.10 12.53 38.58 39.06
5.91 12.88 38.53 35.50
6.47 13.64 42.37 31.77
6.85 13.34 38.46 30.76
0.23 14.02 40.25 24.55
3.31 14.80 37.01 24.98
8.41 14.37 28.84 27.67
6.11 15.05 33.99 31.75
4.56 19.72 33.18 31.66
5.88 17.31 31.20 32.71
5.36 16.51 32.17 32.94
5.72 16.09 33.36 33.10

38