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1.1      Background to the study      

The word ‘’HEALTH’’ is a state or ability of an individual to live a socially and economically productive life (WHO, 2001). Moreover, health is also one of the most important and crucial factors that determines the quality of human capital, a necessary factor for economic growth and development which is the basis of any activity that man engages in (Olarinde & Bello, 2014). Yet for several decades, as observed by (World Health Organization, 2001) its relevance were not noticed. It was not until recently that the importance of health as a substantive predictor of human capital development and economic growth came to limelight in the international growth literature (Kalemi-Ozcan, 2000; Bent & Oved, 2000) and; (Bloom, Canning and Sevilla, 2005). In fact, when one considers the Arabian proverb, “he who has health has hope and he who has hope has everything” (Nwaobi, 2005) and the popular African saying “Health is wealth” because the first wealth of a nation is its health (Peretovsky, 2006). Thus, it has become imperative that the significance of health cannot be overemphasised. Premised on the foregoing, a consensus of opinion have been formed among empirical researchers recognizing health as a public good, in which the demand and supply of which cannot be left at the mercy of the invisible hands or profit maximizing individual as well as on considerations of utility maximizing conduct alone. Hence, the need for the government to play a major role in delivering good and qualitative healthcare services that is accessible and affordable for the teeming population of the country.

The recognition of the importance of health as a substantive predictor of human capital development led the World Health Organisation (WHO) to propose at the 2010 World Health Assembly, issues that will address financing of health, which will ensure qualitative and affordable healthcare services in the country (Ataguba & Akazili, 2010). The pattern of health financing is therefore closely and indivisibly linked to the quality of health outcomes, capable of achieving the long-term goal of enhancing nation’s economic development (Riman, 2012).

On the other hand, health has also been defined as a complete state of physical, mental and social well being and not merely the absence of illness or sickness (World Health Organization (WHO, 1996). It has remained the most important human asset which enables economic agents to achieve their goals as well as provide a more in-depth analysis of the importance of institutions in determining a sustainable positive health sector outcome with its multiplier effects on development. As Strauss and Thomas (2001) noted, a healthy population would contribute more to the growth of economy as well as to the productivity of a nation compared to an unhealthy one. In other words, the quality of human labour is a monotonic function of its health status through the performance of health sector; and when a population is unhealthy, several man-hours will be lost due to the inability of the sick one to be productively engaged. Also, the issue of health is a very sensitive one because it deals with not just humans but with human body. Without a good health condition it is almost impossible to carry out  any economic activity and if at all there is any, it will certainly not be efficient and so we really have to take the issue of healthcare seriously (Cremieux, Ouellete & Pilon, 1999).

Furthermore, it has been established in the literature that improvement in health care is an important prerequisite for enhancing Human Capital Development (HCD) in every economy. According to Siddiqui, Afridi and Haq (1995, 2002) improved health status of a nation creates outward shift in labour supply curve/increase productivity of labour with a resultant increase in productivity of investment in other forms of human capital. Thus, the level of government expenditure on health determines the ultimate level of human capital development which eventually leads to a better, more skilful, efficient and productive investment in other sectors of the economy (Muhammad & Khan, 2007).

In the light of the above, improving the health status of the people will not only increase their wellbeing, but will also contribute directly to poverty reduction and long-term economic development through the q uality of institutions which in turn lead to multiplier process. Health is therefore, considered a robust engine which accelerates economic growth and development (International Bank for Reconstruction and Development IBRD, 2005).

Lending further credence to the foregoing, the Commission for Macroeconomics and Health (2001) reports that:

“Improving the health and longevity of the poor is not an end in itself, but a fundamental goal of economic development and poverty reduction… the burden of diseases in some low-income countries, particularly in Sub-Sahara Africa stands as a stark impediment to economic growth and therefore must be addressed frontally and centrally in a comprehensive development strategy”.

Suffice to say that, healthcare impacts on economic development by reducing production loss due to workers’ illness, lowers the rate of absenteeism and raises productivity level as a result of better nutrition, sanitation, clean water, basic infrastructure and housing which according to Bleakley (2007) and Babazono (2006) have been shown to be more effective and efficient in health outcome.

Like a typical production set-up, the provision of the above health-care and health-related facilities utilizes certain amount of capital and other important inputs which are not cost-less. Due to its capital-intensive nature, the health sector in Nigeria becomes discouraging as a result of inadequate healthcare facilities, even where it is available they are antiquated and are usually beyond the reach of the average poor (Gbadero, 2005). In some instances, the people are forced to seek solace in traditional remedy centres which further worsen their ill-health. This is where public investment in the sector is indispensable.

Consequently, international bodies like World Health Organization (WHO) and United Nations International Children’s Emergency Fund (UNICEF) held a conference in 1978 at Alma-Ata, USSR where the concept of Primary Health-Care was articulated as the major key that realising the vision of health as an engine of growth and social justice (Lucas, 2000). Since then, public investment in health has been recognized as a veritable instrument for accelerating economic growth. This further justifies why governments all over the world till today, devoted a significant fraction of their budgets to their health sectors. This is to ensure qualitative and affordable healthcare services for the people in the country, through the intervention of institutional quality.

1.2       Statement of the Problem

Alluding to the introductory facts of this research and as an evidence of its commitment towards the restructuring of the health sector in its fiscal operation, the Nigeria government has taken up the responsibility of providing good healthcare facility for its citizens by improving its expenditure on health. Available data indicated that on the average, about 2.1% to 5.8% of total government expenditure are expended on health within 2000 and 2007 (Mordi, 2010). The belief is that this would improve the health of the citizenry that can translate into healthy human capital base with its multiplier effects on economic growth and development.

Despite this improvement on healthcare spending, the country still lags behind  compared to other countries in the continent. Available statistics have shown that the country’s public expenditure on health as a percentage of GDP is 4.1 percent as against 4.6 percent African average, and over 6.3 percent in developed countries. With these efforts, Nigeria’s overall health status or sector performance outcome has not been so encouraging (Yaqub, Ojapinwa and Yussuff, 2010). Nigeria’s overall health performance was ranked 187th among the 191 Member States by the World Health Organisation (WHO) in 2000. Furthermore, Nigeria was also ranked 100th in health and survival out of 128 countries. This indicates that there is still much to be desired in the country’s healthcare system (Bird, 2010). Life expectancy which had increased up to 53.5 on the average till 1990 from 1981, fell to 43.7 for men and 44 years for women in 2005, before moving up to 54 in 2007. With a high fertility rate, low family planning usage (15 per cent) and relatively poor access to health care, Nigeria has a maternal mortality ratio of 800 deaths per 100,000 live births. The estimated annual maternal deaths figure of 37,000 means that Nigeria bears the second highest maternal burden in the world (Omeruan, Bamidele and Philips, 2009).

Evidently, Nigeria’s health expenditure is relatively low, when compared with other African countries. The Total Health Expenditure (THE) as a percentage of the Gross Domestic Product (GDP) from 1998 to 2000 was less than 5%, falling behind THE/GDP ratio in other developing countries such as Kenya (5.3%), Zambia (6.2%), Tanzania (6.8%) Malawi (7.2%), and South Africa (7.5%). Limited institutional capacity, corruption, unstable economic, and political context have been identified as factors, while some mechanisms of financing healthcare have not worked effectively in Nigeria (Yaqub et al. (2010). The level of government expenditure in Nigeria’s health sector over the years tells a story of neglect. With reference to the Health Reform Foundation of Nigeria (HERFON, 2006), before the civilian government came into power in 1999, the annual government expenditure on health was $533.6 million in 1980 after which it nose-dived, reaching a trough of $581.8 million in 1997. By 1999, significant increases in health expenditure was noticed.

However, the health system is still plagued with many problems such as lack of drugs, inadequate supply of water, personnel amongst others, all of which have contributed to a reduction in the quality of health services provided, and also the existing health facilities are consistently deteriorating without adequate maintenance. Even though the World Bank (1994) urged that countries must devote a minimum of 5% of their GDP to the maintenance of the health sector, many developing countries Nigeria inclusive, spend less than 3% of their GDP on the sector (Amaghionyeodiwe, 1999). The chronic underfunding of health facilities in Nigeria resulted in poor maintenance, low incentives for health personnel, lack of essential infrastructure and, in most cases, insufficient hospital drugs for patients. The low morale that is bound to result from this situation has led to massive brain drain in the health sector in Nigeria.

Furthermore, according to Omeruan et al. (2009) another major challenge of Nigeria healthcare system has been largely due to the un-planned consequences of social policy. Consequently, health services in Nigeria have suffered from decades of neglect, endangering Nigeria health status and national productivity. The healthcare system management is in three tiers; tertiary healthcare provided by the Federal Government of Nigeria (FGN), mostly coordinated through the university teaching hospitals and federal medical centres. The second healthcare service provider is the state governments which manage the General Hospitals. The third tier is the Local Government (774 LGAs) which focuses on primary healthcare services administered in the dispensaries. It is the primary healthcare that suffers the most neglect. Women, children and especially the core poor die from avoidable health problems such as infectious diseases, malnutrition, polio, guinea worm, measles, complications at pregnancy and childbirth. Government’s expenditure has not provided adequate health infrastructure, especially in the rural areas of primary health care.  The health sector suffers from the dearth of qualified healthcare personnel and regulations, as Nigeria’s promising doctors, pharmacists, nurses and other health professionals continue to leave Nigeria render their services more profitably in other countries. Nigerians are being denied quality healthcare services, especially those in the rural areas. However, health spending as a proportion of the federal government expenditures shrank from an average of 3.5% in 1970s to less than 2% in 1980s and 1990s (FMOH, 2004).

An improvement in health status of the citizenry is an important prerequisite for achieving human capital development in every economy with its multiplier effect in skilful, efficient and productive investment in human capital that will translate into economic development. A glance at the overall human development index (HDI) of the country portrays a disappointing picture of its quality of human capital. The country ranked 153rd position among 187 countries on the HDI ranking in 2012 with HDI value of 0.47. Although the country experienced an improvement on the HDI ranking compared to its rank of 155th in 2011, still the country cannot make the first ten countries with the highest HDI value in Africa falling behind Kenya, Cameroon and Ghana (UNDP, 2013). Increase in budgetary allocation  on the provision of social services is highly advantageous in a developing country like Nigeria. This by itself not sufficient to guarantee enhancement in service delivery.

Finally, there are also many empirical works on health expenditure and outcomes nexus, a handful of them used cross country data with assumption of homogeneity (Odusola, 1998; Gupta, Verhoeven and Tiongson, 1999;  Kaufman, Kraay and Mastruzzi, 2004; Anyawu, Oyelusi and Dimowo, 2007; Bakare and Olubokun (2011) & Yaqub et al. 2010). Those on Nigeria only concentrated on the effect of public expenditure on health outcome with the exceptions of Yaqub et al. (2010) which tried to provide a link between healthcare expenditure, health outcome and  corruption. This is not without its shortcoming by using variables that are based on perception as well as inability to determine the chain of causality. This notwithstanding, they all suffered from omitted explanatory variables bias such as number of physicians, gross capital formation, literacy rate, urban population rather than population in rural area as well as per capita income of an individual towards qualitative healthcare services, which had been considered and used in this study in the determination of health outcomes in Nigeria. In addition, many previous investigation on the subject matter, failed to completely account for the feedback effect or shock transmission among the variables used in their model. It is against this background that this study sought to fill the vacuum/gap(s) by investigating the specific impact and shock transmission between government healthcare expenditure and health sector performance outcome as well as determine the short run causality relationship among the variables and justification for investing public funds amongst others. Consequence upon this, the main questions to be answered by this study subject to the process of bridging the existing research gaps are embedded in the following research questions, objectives and hypothesis of the study as highlighted in sub-sections 1.3, 1.4 and 1.5 respectively, considering the aforementioned short comings.

1.3      Research Questions              

The following research questions are raised from the identified problem to ascertain the impact of government healthcare expenditure on health sector performance outcome in Nigeria:

  • Is there any trend and pattern of government healthcare expenditure dynamics in Nigeria?
  • What is the nature of relationship among health sector performance outcome and government healthcare expenditure variables in Nigeria?
  • Do shock transmissions from government healthcare expenditure variables have effect on outcome performance of Nigerian health sector?
  • What is the direction of causality between government healthcare expenditure and health sector performance outcome in Nigeria?


1.4     Objectives of the study

The overall aim of this study is to investigate the impact of government healthcare expenditure on health sector performance outcome in Nigeria. However, the specific objectives are to:

  • analyse the trend and pattern of government healthcare expenditure and its dynamics over the years in Nigeria.
  • examine the nature of relationship among health sector performance outcome (infant mortality and life expectancy rates), and government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.
  • assess the extent to which health sector performance outcome (infant mortality and life expectancy rates) responds to shocks or innovations from its dynamics in the system.
  • examine the direction of causality among health sector performance outcome, and government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.

1.5    Hypotheses of the study

  • H0: There is no significant relationship between government healthcare expenditure, number of physicians, literacy rate, urban population, per capita income, and the performance outcome of Nigeria health sector.
  • H0: Health sector performance outcome (infant mortality and life expectancy rates) does not respond to shocks / innovations from government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income.
  • Ho: Causal relationship does not exist between government healthcare expenditure, number of physicians, literacy rate, urban population, and per capita income and health sector performance outcome in Nigeria.

 1.6       Significance of the study

In view of the various empirical works carried out by many researchers in Africa to examine the relationship between public healthcare expenditure and health sector performance outcomes, have been using indicators like fertility rate (FR), neonatal mortality rate (NMR), prevalence rate of human immunodeficiency virus (HIV) tuberculosis (TUB) amongst others, which are not robustness enough to produce an effective relationship to health outcome, credence to the work of Filmer and Pitchett (1999, 2001), and also support the work of Wagstaff and Cleason (2004) that FR, NMR, PRHIV, TUB among others showed an insignificant relationship to health sector performance outcome. Therefore, this research is unique in the sense that, it made use of two major indicators in the health related issues namely: life expectancy and infant mortality rates that have not been considered or used by any of the researchers, credence to the strand of empirical studies. In addition, two different estimation techniques the Auto-Regressive Distributed Lag (ARDL) model and Vector Auto-Regressive (VAR) techniques have also not been adopted to investigate the theme in the Nigerian context. Hence, this study will bridge the gap in empirical literature by considering the relationship between public healthcare expenditure and health sector performance outcome in Nigeria and as well as to have a robust representation for Nigerian health sector.

Premised on the above, the findings of this study will be of great help to policy makers in formulating sets of health policy targeted at reducing infant mortality rate and increasing life expectancy rate in the country. In the same vein, the study will draw the attention of government and health sector stakeholders in the country to the effective use of health policy instruments for economic recovery from both national and global economic downturns.

Furthermore, the study will provide library services for readers. Every chapter of this study constitute an area of study for students and serve as resource materials for teachers, especially in higher institutions of learning /teaching or studying health economics. Without mincing words, the empirical results of previous works on the relationship between government healthcare expenditure and the performance of Nigerian health sector may needs to be updated so as to meet up with the recent challenges confronting the Nigerian health sector. To this end, the study will therefore update the data-set used by the previous researchers to produce a dependable result that is efficient to remove all the health related challenges confronting health sector in Nigeria.

1.7       Scope of the Study

This study covers the period between 1980 and 2015 which is a thirty-six year period. The period is chosen because it is long enough to be able to investigate and explain the impact of government healthcare expenditure on health sector performance outcome in Nigeria. The study also limited to health and economic related variables such as government healthcare expenditure, number of physicians, urban population, literacy rate, and per capita income as well as health sector performance outcomes proxied by infant mortality and life expectancy rates in Nigeria. The choice of this period is based on the fact that, the period marked the beginning of the era of pronounced institutional decay in health sector as well as health sector reforms in the country that have not to some extent, transformed into sustainable economic development and also alluding to the fact that the Nigerian economy despite its wide range of resources has not experienced the necessary managerial, structural and institutional changes that would guarantee rapid and sustainable growth  towards acceptable minimum standard of living in the country.

Furthermore, the length of the period allows the study to examine the long run relationships that exist between government healthcare expenditure and the performance of health sector in the country. Precisely, the chosen period is long enough to meet the minimum observation requirements necessary for the Auto-Regressive Distributed Lag (ARDL) model and Vector Auto-Regressive (VAR) techniques employed in this study.

1.8     The Structure of the Study

This study is divided into five chapters. Chapter one deals with the introductory aspect of the study which includes statement of the problem, objectives of the study, hypotheses formulated and tested, significance of the study, scope of the study and organisation of the study. Chapter two discusses the literature review covering the relevant conceptual, theoretical and empirical literatures. The chapter three treats theoretical framework and research methods. Chapter four considers the presentation of data analysis, interpretation of empirical and policy implication of results; while chapter five provides the summary, conclusion, policy recommendations, contribution to knowledge and suggestions for further research.



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