Government expenditure on health and economic growth in Botswana: Testing for cointegration and specification of deterministic components using the pantula principle

Abstract:

This study examines the relationship between government expenditure on health and economic growth

in Botswana. It seeks to test the existence of cointegration and specification of the deterministic

components with special reference to the Pantula Principle. This helps to overcome the shortfall of the

method by Johansen, which may lead to spurious results by omitting the presence of deterministic

components in the analysis. The cointegration approach is used and tested using three methods by

Engle and Granger (1987) or EG, a procedure suggested by Johansen (1988) and error correction

model (ECM) approach proposed by Granger(1988) and short-run analysis is made using the pairwise

granger causality tests. Findings show that the correct model specification for testing long-run

relationships consists of one cointegrating vector with a constant which is the most restrictive

hypothesis according to the Pantula principle. Using the Johansen approach, total health expenditure

and recurring health expenditure have a cointegration relationship with growth while development

health expenditure and growth are not cointegrated. The ECM and the approach by EG confirm a weak

and/or no cointegration between the variables. Growth has no effect on government expenditure on

health in the short run, but a cointegration relationship suggests that it may marginally contribute to

an increase in health expenditure over the long term. The study clarifies the correct model to test for

cointegration and specification for the deterministic component. It confirms the existence of a

healthcare expenditure-led growth hypothesis. This requires Botswana to design a policy that targets

specific parts of recurrent and

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