Growth, Carbon Emissions, and Public Health Spending: Long-Run Evidence from South Asia

Abstract

Rising public healthcare expenditure in South Asia reflects not only pressures within health systems but also broader patterns of economic growth, investment, trade, and environmental degradation. This study examines the long-run effects of economic growth and carbon emissions on government health expenditure in Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka using annual panel data for 1995–2023. Gross fixed capital formation and trade openness are incorporated as control variables. The empirical strategy applies the Im–Pesaran–Shin panel unit root test, the Pedroni panel cointegration test, and Fully Modified Ordinary Least Squares estimation. The unit root results show that all variables are non-stationary at level but stationary after first differencing, indicating integration of order one. The cointegration results provide sufficient evidence of a stable long-run relationship among government health expenditure, gross domestic product, CO₂ emissions, gross fixed capital formation, and trade openness. FMOLS estimates indicate that all four explanatory variables have positive and statistically significant long-run effects on government health expenditure. Specifically, economic growth expands fiscal capacity to finance public healthcare, whereas higher CO₂ emissions are associated with additional health-system pressures arising from pollution-related risks. Capital formation also strengthens public spending capacity, while trade openness has a positive but comparatively small effect. These findings show that public health expenditure is shaped jointly by economic opportunity and environmental pressure. The study concludes that South Asian governments should integrate health planning with cleaner growth strategies, stronger environmental regulation, sustainable investment, and trade policies that improve access to health-related goods and technologies while limiting pollution-intensive development.

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