Short- and Long-Run Effects of Health Expenditures on Economic Growth in OECD Countries: A Panel ARDL (PMG) Analysis

Abstract

This study aims to examine the impact of health expenditures on economic growth in OECD countries within the framework of short- and long-run dynamics. The analysis uses annual data covering the period 2015–2024 for 38 member countries of the Organisation for Economic Co-operation and Development (OECD). The dataset was compiled from the OECD database and the University of Groningen Growth and Development Centre database. The Panel Autoregressive Distributed Lag (Panel ARDL) model with the Pooled Mean Group (PMG) estimator was employed as the main econometric methodology. In the model, Gross Domestic Product (GDP) was used as the dependent variable, while total health expenditures, human capital, and capital stock were included as independent variables. All variables were transformed into natural logarithmic form, and panel unit root and cointegration tests were conducted prior to estimation. The empirical findings indicate that health expenditures have a positive and statistically significant effect on economic growth in the short run. However, the long-run impact of health expenditures on economic growth is found to be negative and statistically significant. The long-run coefficients of human capital and capital stock are not statistically significant. In addition, the error correction term is negative and highly significant, suggesting the presence of a stable long-run equilibrium relationship and indicating that short-run disequilibria are rapidly corrected. Overall, the results reveal that the relationship between health expenditures and economic growth varies over time. While health expenditures support economic growth in the short run, their long-run effects may differ depending on fiscal sustainability and resource allocation dynamics. These findings suggest that health policies should be designed within a sustainable framework that is consistent with broader macroeconomic objectives.