How Does Medical Expenditure Affect Economic Development? Evidence from OECD countries

This study views medical expenditure as an enhancement factor to human capital and, as such, medical expenditure and national healthcare system can have a positive impact on economic development. Using a non-balanced panel data of 26 OECD countries during the period of 1980 and 2008, we find that, as expected, the level of medical expenditure has a positive effect on economic development. In particular, total medical expenditure, public health expenditure and current health expenditure all show a positive effect while cost of capital for forming health care system has a negative impact on economic growth. No statistically significant effect of private health insurance expenditure is found. The effect of national healthcare system is also examined. Both National Health Service and National Health Insurance groups indicate a positive effect on economic progress with respect to total medical expenditure and public health expenditure. On the other hand, current health expenditure and private health insurance expenditure positively affect the National Health Insurance countries but negatively affect the National Health Service countries.