Assessing the relationship between economy and health in Malta

Abstract

Health and economic growth are two fundamental aspects desired by every society. One of the main concerns of every government is the sustainability of healthcare expenditure given its positive implications on the individual’s wellbeing and the society as a whole, especially in terms of better health outcomes. The countries and individual’s productivity are highly dependent on their health levels. However, higher economic growth can ease the flexibility of governments in allocating resources towards sustaining further health expenditure. Thus, multiple questions concerning the causality between these two fundamental concepts arise. Indeed, the main objective of this study is to establish the causality between economic growth and health and to also evaluate the direction of the causality. This study goes a step further by trying to establish whether a common factor, in this case, education, causes both health and economic growth to increase simultaneously over time. The Granger causality test was used to establish the presence and direction of this causality in Malta. Three variables were included in the model to determine all possible causalities that could have existed during the period 1995–2019 and which may have affected health and economic growth. Health was captured by the total health expenditure as the health input and life expectancy as the health output. On the other hand, economic growth was represented by GDP per capita. The reviewed literature indicates that education has a positive relationship with both health and economic growth. This common factor was measured using the number of university graduates as these tend to be the most productive and knowledgeable entrants in the workforce. The model was run using different lag values to assess whether past values could better explain future outcomes; however, this procedure was limited due to small number of observations. The findings obtained show that health expenditure, life expectancy, GDP per capita, and the number of university graduates are independent of each other and thus one concludes that causality does not run in either direction.