The income-health nexus dilemma: Investigating the income elasticity of health spending in West Africa

Abstract

Despite huge health investments, West Africa continues to face huge health challenges in the form of high maternal and infant mortality rates, poor healthcare infrastructure, low proportion of health insurance coverage, and the continued scarcity of health financing. This study examines the income elasticity of government and private health expenditure among 16 West African countries between 1996 and 2024 using a panel Autoregressive Distributed Lag (ARDL) model with the Pooled Mean Group (PMG) estimation method, which accounts for heterogeneous short-run dynamics and adjustment processes across countries while imposing common long-run coefficients. The results show that private and government health expenditures in the long run are positively and statistically significantly influenced by income. The long-run income elasticities are estimated to be 0.685 for government health expenditure and 0.282 for private health expenditure, which indicates that health expenditure is a necessity good and not a luxury good in the West African sample. The short-run estimates are also positive but weaker, and the statistically significant and negative error-correction coefficients suggest that the adjustment to long-run equilibrium after short-run shocks is a gradual process. Implication-wise, the evidence shows that relatively poorer West African countries either face low-magnitude inelastic income health spending, thereby leaving their healthcare needs unmet, compared to richer countries. Therefore, the study suggests that economic growth is unlikely to be enough to ensure that health systems receive sufficient funding, and complementary policies are needed to improve the efficiency of health spending and help increase financial protection and health financing.