Spending on health care: What drives it and does it matter? Three essays on the wealth, health spending and health of nations

This dissertation examines the relationships between wealth, health spending, and health at the country level. The research revisits a set of interrelated questions on which the literature provides conflicting evidence: the first question investigates how much growth in a country's income drives growth in health spending in different country-income groups; the second question is concerned with estimating the effect of donor funding on domestic government health spending; and the third question evaluates the effectiveness of health spending in achieving better country health outcomes. The analyses in this dissertation were conducted using a panel dataset that was especially constructed from multiple sources by the author for the purpose of conducting this study (181 countries for 12 years 1995-2006). Robust econometric methods were used to examine these relationships. This dissertation consists of three papers.;The first paper examines the relationship between growth in a county's income and health spending. To date, international analyses on the strength of the relationship between country-level per capita income and per capita health expenditures have predominantly used developed countries' data. This study expands this work using a panel data set for 181 countries for the 1995-2006 period. The research shows that health care has an income elasticity that qualifies it as a necessity good, which is consistent with results of the most recent studies. Furthermore, the evidence indicates that health care spending is least responsive to changes in income in low-income countries and that government effectiveness has a positive effect on health spending growth in low-income countries. The results suggest that income growth alone is not sufficient to increase the levels of health spending in these countries to desirable levels. The finding that government effectiveness is associated with mobilizing more funds for health highlights the importance of investing in improving governance because of its positive spillover effects.;The second paper poses the question, "How does donor funding affect domestic government health spending?" This is a particularly important question in light of the notable increases in funding from various donors for health over the past several years. The study measures the extent to which donor funding substitutes for---rather than complements---health financing by recipient governments. There is evidence for a strong substitution effect; the proportionate decrease in government spending associated with an increase in donor funding is largest in low-income countries. The results suggest that to meet donor objectives, aid should be structured in a way that better aligns donors' and recipient governments' incentives using innovative approaches such as performance-based aid financing.;The third paper examines the relationship between country health spending and selected health outcomes (infant mortality and child mortality), using data from 133 low and middle-income countries between 1995 and 2006. Unlike much of the previous evidence on aggregate health spending in developing countries, which finds the effect of aggregate health spending to be insignificant after controlling for income, this paper finds that total health spending and government health spending do have a significant effect on reducing infant and child mortality. A 1% increase in per capita total health spending is associated with reductions of 0.33% in infant mortality and 0.38% in child mortality. In addition, the paper finds evidence that good governance increases the effectiveness of health spending, an impact much discussed and seldom empirically explored in the literature. This paper contributes new evidence pointing to the importance of investing in health care services and improving governance for achieving better health outcomes.;This dissertation contributes to an increased understanding of the relationships between wealth, health spending and health outcomes- particularly for developing countries, where evidence is scarce as a result of data unavailability. The study has direct policy implications for improving health outcomes in developing countries through increasing allocations to health sectors, improving governance and restructuring health aid.;The first paper entitled "The income elasticity of health care in developing and developed countries" was revised and resubmitted to Health Economics with referees' requested changes. The second paper entitled "Does funding from donors displace government spending for health in developing countries?" was published in Health Affairs 28, no. 4 (2009): 1045--1055. The third paper entitled "Does spending on health care in developing countries save children?" will be submitted to the journal Social Science and Medicine.