Health investment, health outcomes and economic growth in China: an applied macroeconomic analysis

Health is regarded as an important dimension of human development and its crucial role as human capital has been long recognised; however, the strategic role of health investment remains undervalued in less developed regions. China is a very good example of this. Along with the economic transition in the past three decades, China’s health care system has also undergone several major changes. A key policy change was a shift of the main responsibility of health care finance to the individual in the early 1990s and a reversal of this in the early 2000s after the SARS epidemic. Possibly as a result of this, the population’s health status is reported to be performing below its potential. This thesis conducts a thorough empirical investigation of the various and varied relationships between health investment, health outcomes and economic growth in China, using publicly available macro data; thus it makes a significant contribution to the academic literature, as well as provides evidence for policy-makers in both China and other countries in transition. More specifically, this thesis empirically studies (1) the long-run relationship between health investment and economic output; and (2) the short-run nexus between health expenditure behaviours, health status and economic fluctuations, through both national time series and provincial-level panel data from mainland China. Overall, the results suggest that health investment has a significant and positive role in explaining the level of economic output in the long-run; and an estimated stronger effect in inland China may further highlight diminishing returns in health investment. The short-run results also suggest a significantly pro-cyclical movement of government health expenditure with economic growth. Furthermore, child health outcomes and infectious disease incidence are also significantly associated with economic fluctuations.