Healthcare expenditures and economic growth: evidence via panel local projections

This study investigates the elasticity of healthcare expenditures (HCE) with respect to income growth using a balanced panel of 177 economies from 2001 to 2020. Applying a panel local projections (LP) model, we examine both global and heterogeneous effects across income groups, as defined by the World Bank income classification. The model is further extended to estimate the relationship between income and HCE during changing economic conditions. Accordingly, we find that the elasticity weakens during non-expansionary periods, while high-income countries exhibit a minimal contemporaneous response. In contrast, low-income countries exhibit a heightened contemporaneous response to income fluctuations during non-expansionary phases, revealing a hidden vulnerability to economic growth.