WESTMINSTER INTERNATIONAL UNIVERSITY IN TASHKENT

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Deadline date 24.11.2022
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MARKERS FEEDBACK (Continued on the next page)

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Contents list

Introduction ___________________________________________________3

Literature Review ______________________________________________3

Methodology __________________________________________________4

Results & Discussion ____________________________________________6

OLS Assumptions Validity Test _____________________________________8

Conclusion _____________________________________________________9

References______________________________________________________10

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Introduction
The role of healthcare nowadays has become a focus required topic in a whole economics and is one of
the priority divisions of government, also the link between the economic growth and public expenditure made
on healthcare facilities plays a major role in global peace and security and as well as it determines the quality of
daily life-cycle (World Health Organization, 1946). Health is considered as an asset according to World Health
Organization (2001) which everyone must to own, on the other side, however, it has its own intrinsic and
instrumental values that are typically treated as human rights and responsibilities.
As Manat (2015) claims that healthcare system of Mexico is poorly organized and underfunded in order
to meet the basic daily needs of its population as life expectancy rises, since the establishment of Healthcare
Ministry, the major changes, have not been experienced however, the profile of patients in the country has
changed especially diabetes, obesity, cancer issues, and heart diseases. For the purpose of better understanding
the development of healthcare sector, it is important to determine and utilize the factors of healthcare
expenditure in Mexico over 2000-2019 by utilizing Ordinary Least Squares regression approach.
The remaining pages are categorized in the following order: first, a brief literature which includes prior
theoretical papers and empirical findings made by other researchers will be reviewed, second, well-structured
methodology part which consists of data description, explanations and origin of variables, and target estimation
model of the present topic will be presented, third, estimated empirical results with the help of statistical
software will be given followed by the conclusion part which is about to emphasize on the strengths and
weakness of the present paper together with policy implications.

Literature review
External aid by other countries or unions affects the aid receiving countries’ attitude towards the public
healthcare spending specifically public spending on healthcare incresase as political, economical stability
conditions improves with the help of outside help. Nevertheless, there are other studies which contracts the
views above mentioned. As a result of increased foreign aid inflows into receiving countries ends with less
spending on public healthcare services.
By applying the fixed effects instrumental variables panel regressions for 45 Sub-Saharan African
countries over 1995-2015, Mustafa Ali, Ebaidalla and Rizk (2020) examine the size of the impact of foreign aid
on public health expenditure. The results suggest that the chosen variables are not robustly correlated with each
other and according to authors’ claims the study contradicts the prior findings.
On the other hand, different aid programms specialized in eliminating adult HIV prevalance rates
among nations indeed affects the healthcare spending conditions. Youde (2010) proved the existence of
statistically significant correlation between foreign aid and expenditures made on reducing the rates of
HIV/AIDS among the adults.
A relatioship among income per capita and healthcare costs utilization is widely discussed by Grossman
(1972), Muurinen (1982) and Wagstatt (1986) who found less significant connection between two variables. By

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analyzing the cross sectional data in 19 OECD countries in the period of 1987 only, Gerdtham and his collegues
(1992) investigated an influence of GDP per capita on healthcare consumption and discovered significant but
adverse relation among them. Furthermore, for the purpose of determining the contributory effect of income
growth on national expenditure made on healathcare facilities Fogel (1994) conducted a study in Great Britian
based on the datasets belong to the period of 1790-1980 and an improvement is experienced in healthcare
services as per capita income grows. Similarly, a robust and direct correlation among higher level national
income and healthcare expenses discovered priorly by Abel-Smith (1967), Leu (1986) and Wilson (1999)
As a proxy of technological advancement Hauptmann (2018) selected Research and Development and
studied its effects on the grwoth of healthcare expenditures with datasets for 35 OECD countries 1970 till 2018
and the author found negative and statistically significant relationship among the variables. He concludes that
investments spent on research and development reduces the amount of public healthcare expenses. Nonetheless,
one of the previous findings contradicts the negative correlation existance between the technological
advancement spending and public healthcare expenditure, according to Sorenson, Drummond and Khan (2013)
treatment of severe illnesses requires certain medical equipments which requires higher spending on
technological advancement as a results compensating both technology and healthcare related costs increases the
overall helathcare expenses. In addition to this, the author emphasized that the relation between the selected
variables depends on the value of output from the healthcare sector.
A positive relationship between crude birth rate and the cost of healthcare discovered by Leu (1986).

Methodology
Estimation model.
The Ordinary Least Squares (OLS) technique was firstly invented by Carl Friedrich Gauss in 1975,
however later on, by another mathematician Adrien-Marie Legendre it is rediscovered. The main features of
OLS are:
 Easy to mathematically analyzed and understand instead of utilizing other types of regression
techniques.
 Estimated results of the least squared regression gives such as coefficients are interpreted easily.
 Moreover, common Gauss-Markov assumptions are also applied to OLS such as errors resulting from
random variables must be uncorrelated from each other, variances of all variables must be unique,
regressors must not be correlated with error terms, the relationship among dependent and independent
variables must be linear and randomness of raw data.
Raw data.
Data utilized in this paper is considered as macro data and obtained from World Bank Open data and World
Health Organization database for the period of 2000-2019.

Variables selected

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1. Healthcare spending – level for expenditure spent on healthcare expressed as a percentage (%) of gross
domestic product of a country.

2. GDP per capita – income per person in a country found by dividing the gross domestic product to
midyear population taken from World Bank, measured in US dollars ($). Expected effects: H a: β1>0 and
β1<0

3. Foreign aid – loans and grants made by the member countries of Development Assistance Committee
given to the receiving country, measured in US dollars ($). Expected effects: Ha: β2<0, or no relation

4. Research and development – gross domestic spending made on research and development expressed as
a percentage (%) of GDP which is aimed to strengthen research, applied research and experimental
development. Expected effects: Ha: β3<0

5. Crude birth rate – represents the number live births occurred during the year per 1 000 population.
Expected effects: Ha: β4>0

Empirical Specification

The following economic model applied in order to investigate the correlation between the variables:

HCE = ʄ( GDPPerCap, NODA, R&D, CBR)

or mathematically

HCE = β0 + β1GDPPerCap + β2NODA + β3R&D + β4CBR + ε

Where:
HCE stands for Healthcare Expenditure made by a government
GDPPerCap – gross domestic product per capita in dollars
NODA – net official development assistance (official aid) received
R&D – expenditure made on research and development as a percentage of GDP
CBR – crude birth rate per 1000 people

β0 – slope of a function

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β1, β2, β3, β4 – coefficients of the regressors
ε – error term

Results & discussion

The aim of the part of the paper is to present the obtained results from the analytical software Stata 15
and to compare the current findings with prior literature.

Summary of variables
Variables Number of Mean Standard Minimum Maximum
Observations Deviation
Health 20 5.5127 0.390836 4.49125 6.129785
Expenditure
Crude Birth 20 20.3535 1.99294 17.297 23.85
Net ODA 20 3.785e+08 2.91e+08 -4.05e+07 9.67e+08
GDPPC 20 9026.021 1216.327 7075.37 10928.92
R&D 20 0.391961 0.0604427 0.28384 0.49485

Empirical results

Healthcare Coefficient Standard t-value P>|t| 95 percent confidence interval

Expenditure Error
Crude Birth -0.1692359 0.0581863 -2.91 0.011 -0.293257 -0.0452147
rate *
Net Official -6.36e-10 3.39e-10 -1.88 0.080 -1.36e-09 8.57e-11
Development
assistance
GDP per -0.0000875 0.0000833 -1.05 0.310 -0.0002652 0.0000901
capita
Research and 4.843912 1.106989 4.38 0.001 2.48442 7.203404
Development*
Constant term 8.126179 1.6551725 4.88 0.00 4.576948 11.67541

Number of Observations 20 F(4,15) = 6.45;

R squared = 0.6324 Prob. > F = 0.0032

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Referencing to the table above, it can be seen that at 95 confidence interval overall p-value is 0.0032
means that model estimation is statistically significant, but regarding the estimated R – squared, it is equal to
0.6324 means that 63 5 % of variance of the dependent variable (which is HealthcareEx) is explained by the
variance of the independent variables (GDPPerCap, R&D, NODA, CBR) and not considered as one of the best
fitted models, but the topic is almost correctly estimated.

Correcting the problematic model mentioned in the methodology part, it is constructed as follows:

HCE = 8.123179 - 0.0000875*GDPPerCap - 6.36e-10*NODA + 4.843912*R&D -0.1692359*CBR + ε

Coming to individual effects of the independent variables, two variables out of 4 are showing the p-
value more than 0.05, in other words whatever the correlation they have (positive or negative) they are not
considered as statistically robust.

Comparison between current and prior studies.

Starting with the income per capita, results showing that one unit increase in GDP per capita reduces the
amount of healthcare costs by 0.0000875 dollars (initially measured in dollar), nevertheless it is not considered
as reliable effect because of its p-value which is 0.310 (>0.05) when ceteris paribus holds. The present result
partially agrees with Gerdtham et.al (1992) who discovered strong and meanwhile adverse relation between per
capita GDP and Healthcare facilities costs. Moreover, the final remarks of Grossman (1972), Muurinen (1982)
and Wagstatt (1986) are found similar to the currents such us there is no robust correlation exist among the
variables. Yet, there is a contradictory claim cited by Wilson (1999), Leu (1986) and Abel-Smith (1967)
namely income growth among the nations simultaneously rises the cost of healthcare.

Foreign aid measured in official development assistance is found again insignificant due to higher
probability percentage of 0.08, while it is negatively related to the public spending on healthcare. More
precisely, one unit growth in NODA decreases the dependent variable by 6.36e-10 dollars in ceteris paribus.
As Mustafa Ali, Ebaidalla and Rizk (2020) confirm the insignificant connection among the outside help and
local healthcare consumption, this paper confirms obtained results.

Regarding to R&D, on the basis of the table of empirical results unfortunately, investing into research
and development adds more expenses on healthcare costs. Meanwhile, Sorenson, Drummond and Khan’s
(2013) research paper cooperates with the current finding. Mathematically,

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One more percent of investments made on research field, brings additional 4.844 US dollars of healthcare costs
holding other factors constant.

While holding other variables at a constant value, one additional live birth per 1 000 people diminishes
the health costs by 0.1692 US dollars and it is expressed as statistically robust factor, as p-value equals to
0.011(<0.05). A totally opposite outcome discovered by Leu (1986) whose study is about the connection among
the crude birth rate and the cost of healthcare facilities.

OLS Assumptions

Homoskedasticity
Commonly accepted Cook-Weisberg or Breusch-Pagan test for heteroskedasticity is applied in order to
define constant variance condition (homoskedasticity) reject the null hypothesis at 5% significance level.

Null hypothesis (H0): Constant variance

Alternative hypothesis (Ha): Variance varies widely
Variables: Fitted values of healthcare expenditure
Chi-square (1) = 1.47
Prob. > chi2 = 0.2247
To summarize the above findings, at 5 percent significance level, p -value equals 22.47 percent which is more
than 5 %, and fails to reject the null hypothesis. The homoskedasticity assumption of Gauss Markov holds here.

Multicollinearity
Variance inflation Factor approach is employed to test whether regressors are linearly correlated with
each other or not. The table below represents results of VIF test obtained from directly statistical software:
Variables VIF 1/VIF
Crude Birth rate 3.59 0.278370
GDP Per Cap 2.74 0.364379
NODA 2.60 0.385152
R&D 1.20 0.836136
Mean VIF 2.53

Zero Conditional mean of the residual values

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Unfortunately, this is assumption is not satisfied, because when a summary of residuals is found in Stata
15, the mean values are not equal to zero.

Variable Observation Mean Std. Dev. Min Max

r 20 4.66e-10 0.2369581 -0.5227861 0.4391515

Autocorrelation

To find the correlation of regressors with error terms, a regression is runed among the independent
variables and residuals, by assuming the residuals as dependent variable. The table below is obtained from Stata
and it can be summarized as follows: p-values are equivalent to 1 (100%), t-values are 0, R-squared is 0, in
other words, there is no autocorrelation.

Residual Coef. t p>|t| 95% Confidence

CRB -3.73e-10 -0.00 1.00 interval
NODA -3.25e-18 -0.00 1.00
GDPPC 4.78e-13 0.00 1.00
RD 9.94e-09 0.00 1.00
Const. 1.06e-09 0.00 1.00

Conclusion

The research paper is proposed to investigate the effects of several variables on public healthcare
expenditure in Mexico over 2000-2019 by applying OLS regression method. The main results are R&D has
positive and significant impact, while crude birth rate has negative and robust effect on healthcare spending.
Less observations and linearly constructed model might be the limitations of the work and for future researches,
not simply time series also panel data utilization, and not ordinary OLS method but its extensions for specific
areas might be suggested.

References

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