Literature review:

In the past few years, the effects of trade openness on health spending have
not been widely studied. Among the limited studies on this subject, Levine
and Rothman (2006) claimed that trade openness has a moderate impact on
government health expenditure, particularly concerning infectious diseases.
Government health expenditures rise with trade, both due to increasing
incomes and changes in healthcare priorities.

In contrast, Nita (2004) stated that although trade openness can lead to an
increase in health spending, it is not supported by businesses due to its
direct effect on their income. Additionally, profit-maximizing firms have less
incentive to support publicly funded health programs in less developed
countries (LDCs), where labor is abundant and more easily substitutable,
ceteris paribus.

Research on how trade openness impacts health spending through its effect
on economic growth is more prevalent. Many studies show that growth in
income can lead to an increase in health expenditure. According to Smith
(2009), growth in aggregate income (GDP) stands out as an important driver
of healthcare cost growth, despite the small role income plays in the
healthcare decisions of insured households. Income accounted for roughly
one-fifth of the factors that caused health spending to grow.

The study by Bedir (2016) indicates that although there isn’t a significant
difference in terms of income and healthcare expenditures, income level is
the main factor in determining the level of healthcare expenditure. However,
over the coming decades, both developing and industrialized countries will
face sharp rises in health expenditure, as well as other long-term healthcare
challenges, due to their aging populations. Our findings suggest that it is
worthwhile for governments to increase investment in health until it reaches
an optimal level to achieve greater economic development.

Chaaboni (2017) studied the links between CO2 emissions, health spending,
and GDP growth across three categories of countries: low-income, lower-
middle-income, and upper-income countries. There are differences in the
results among these three types of countries. While the economic growth of
low-income and lower-middle-income countries is shown to have a positive
and statistically significant effect on health spending, an opposite effect is
observed in upper-income countries.

However, the findings of Acemoglu (2013) suggest that the increase in

income is unlikely to be a primary driver of the increase in the health share
of GDP, and they do not provide an answer to the question of what underlies
this notable trend.

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In recent years, the relationship between trade openness and health

spending has garnered limited attention in academic research. However,
among the few studies that address this important topic, Levine and
Rothman (2006) provide significant insights into how trade openness
influences government health expenditure, particularly in the context of
infectious diseases. Their research suggests that increased trade can lead to
a moderate rise in government health spending, driven by two primary
factors: the growth in national incomes and shifts in healthcare priorities as
economic conditions evolve.

Conversely, Nita (2004) presents a contrasting viewpoint, arguing that while

trade openness may facilitate an increase in health spending, it often lacks
support from the business sector due to its potential negative impact on
corporate profits. In less developed countries (LDCs), where labor is
abundant and easily substitutable, profit-maximizing firms tend to have
diminished incentives to endorse publicly funded health programs,
particularly when such investments do not align with their immediate
financial interests.

Research examining the impact of trade openness on health spending

through its influence on economic growth is more prevalent and reveals a
generally positive correlation. Numerous studies indicate that as national
income rises, so too does health expenditure. According to Smith (2009), the
growth of aggregate income, as measured by GDP, emerges as a crucial
driver of healthcare cost escalation. Interestingly, while income plays a
relatively minor role in the healthcare decisions of insured households, it still
accounts for approximately one-fifth of the factors contributing to the overall
increase in health spending.

The effect of income increase on healthcare spending can be shown through

medical R&D (Ralph et al 2016). According to this finding, investment in
medical research and development, which, in return, affects real spending
for health. Increase in GDP devotes to more than a doubling of medical R&D
and would have increased the current share of health care spending by more
than 3% of GDP.
Bedir (2016) further explores this dynamic, suggesting that although
significant differences in income levels do not necessarily translate into
disparities in healthcare expenditures, the level of income remains a critical
determinant of health spending. Looking ahead, both developing and
industrialized nations are poised to confront substantial increases in health
expenditure, alongside other long-term healthcare challenges, primarily
driven by aging populations. The findings underscore the importance of
government investment in health, advocating for a strategic increase until an
optimal level is achieved to foster enhanced economic development.

In line with existing literature on health expenditures, Erlangga(2023)

indicates that national income, represented by per capita GDP, is a
significant factor influencing primary health care spending. Wealthier nations
tend to allocate more funds per capita toward primary health care.

Chaaboni (2017) expands the discourse by investigating the interplay

between CO2 emissions, health spending, and GDP growth across three
categories of countries: low-income, lower-middle-income, and upper-income
nations. The study reveals notable differences in outcomes among these
groups. For instance, economic growth in low-income and lower-middle-
income countries is associated with a positive and statistically significant
effect on health spending. In contrast, upper-income countries exhibit an
inverse relationship, suggesting that the dynamics of health expenditure
may differ significantly based on a nation's income classification.

Similarly, research of Badi (2017) et al using data on167 countries over the
period 1995-2012 find the correlation between healthcare expenditure and
income. There are significant differences in health spending between low-
income, middle-income countries and wealthier countries. The poorer
countries have higher income elasticity than the other since residents link
health services as luxury goods while rich nations claim it as necessity.

Despite these insights, Acemoglu (2013) raises critical questions regarding

the underlying factors driving the increase in the health share of GDP. Their
findings indicate that rising income levels are unlikely to be the primary
catalyst for this trend, leaving researchers to ponder what other elements
contribute to this significant shift in health expenditure patterns.

In summary, the complex interplay between trade openness, economic

growth, and health spending necessitates further exploration. While existing
research highlights important correlations, more comprehensive studies are
needed to unravel the intricate dynamics at play and to inform policy
decisions aimed at optimizing health investments in various economic
contexts.
The intricate relationship between trade openness and health expenditure has been a relatively
understudied domain in recent years. While a limited corpus of research exists, the direct causal
link between trade liberalization and health spending remains elusive.

Levine and Rothman (2006) offer a tentative correlation between trade openness and government
health expenditure, particularly in the context of vaccianation spending. They attribute this
association to a confluence of factors, including rising income levels and potential shifts in
healthcare priorities. However, the precise mechanisms through which trade influences health
spending remain largely unexplored.

Nita (2004) introduces a countervailing perspective, suggesting that while trade openness may
correlate with increased health spending, the business community may exhibit reluctance to
support public healthcare initiatives. Profit-maximizing enterprises operating in labor-abundant
economies, characterized by readily substitutable labor, possess diminished incentives to
advocate for publicly funded health programs. This perspective underscores the complex
interplay between economic imperatives and social welfare considerations.

The indirect pathway through which trade openness impacts health spending, via economic
growth, has garnered more substantial scholarly attention. A preponderance of research supports
a positive correlation between income growth and health expenditure. Smith (2009) identifies
aggregate income as a pivotal determinant of healthcare cost escalation,despite its relatively
modest influence on healthcare decisions within insured households. Income constitutes
approximately one-fifth of the factors contributing to the overall growth in health spending.

Bedir (2016) indicates that although there isn’t a significant difference in terms of income
and healthcare expenditures, income level is the main factor in determining the level of
healthcare expenditure. However, over the coming decades both developing and
industrialized countries would face sharp rises in health expenditure, as well as other
long-term health care challenges, because of their aging populations. The study underscores
the imperative for governments to augment investments in health until an optimal level is
attained to catalyze economic development.

Chaaboni (2017) delves into the intricate relationships among carbon dioxide emissions, health
spending, and GDP growth across three distinct income categories. While low and lower-middle-
income countries exhibit a robust and statistically significant positive association between
economic growth and health spending, this pattern is reversed in high-income nations where the
economic growth cause negative and moderately statiscal effects. This finding suggests that the
relationship between economic growth and health spending is contingent upon a country's level
of development.

Acemoglu (2013) challenges the prevailing assumption that income growth is the primary driver
of the escalating proportion of healthcare spending within GDP. The study emphasizes the need
for further investigation to uncover the underlying determinants of this trend. Potential factors to
consider include technological advancements in healthcare,demographic shifts, and changes in
healthcare delivery models.

In conclusion, the relationship between trade openness and health spending is multifaceted and
influenced by a complex interplay of economic, social, and demographic factors. While research
has made progress in identifying some of the key drivers of health spending, a comprehensive
understanding of the mechanisms through which trade and economic growth impact health
outcomes remains elusive. Future research should focus on disaggregating the effects of trade on
different health outcomes, exploring the role of institutional factors, and examining the
distributional implications of trade-related health policies.

Reference
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health spending and GDP growth: A case study for 51 countries
S Chaabouni · 2017
DOES TRADE AFFECT THE CHILD HEALTH 2006
Levine and Rothman
INCOME AND HEALTH SPENDING: EVIDENCE FROM OIL PRICE
SHOCKS
Acemoglu · 2013
Healthcare Expenditure and Economic Growth in Developing
Countries
Bedir 2016
Openness, Welfare Spending, and Inequality in the Developing
World
Nita 2004
Income, Insurance, And Technology: Why Does Health
Spending Outpace Economic Growth?
Smith 2009
HEALTH CARE EXPENDITURE AND INCOME: A GLOBAL
PERSPECTIVE
Badi H Baltagi 1, Raffaele Lagravinese 2, Francesco Moscone 3, Elisa Tosetti 3
2017

Determinants of government spending on primary healthcare:

a global data analysis