Abstract

Increase in health expenditure has a massive impact on the socio-economic conditions in any country. Though, there is no consensus as to whether the rising health expenditure is beneficial or detrimental to economic growth. The present study chose India as a case study to empirically examine a complex relationship between health expenditure and economic growth and used time-series data from 1980-81 to 2014-15 for gross domestic product (GDP) and health expenditure. The findings from the Johansen Cointegration test indicated that there existed a long-run relationship between India’s health expenditure and GDP. Furthermore, the Granger causality test detected bi-directional causality from GDP to health expenditure. Findings from the impulse response function further confirmed these results. This means that India represents an example of a developing economy where the size of health expenditure expands in the process of economic transformation.