Healthcare Expenditure and Baumol Cost Disease in Sub-Sahara Africa

Previous studies have shown that the unbalanced growth model of Baumol (1967) provides a potential explanation for the observed secular rise in healthcare expenditure in developed countries. The model implies that healthcare expenditure is driven by wage increases in excess of productivity growth. However, no study has tested this hypothesis in the developing world. This study formally examines if healthcare costs in Sub-Sahara Africa (SSA) are affected by the Baumol Cost Disease. It relies on an empirical test proposed by Hartwig (2008) and extended by Colombier (2012), and uses a panel data set of 44 countries covering the period 2004-2016. The results suggest that the healthcare sector in SSA is partly contracted by the Baumol Cost Disease. Further, the result suggests that productivity gains over the period under study were over compensated in SSA overall, suggesting that marginal income is higher than marginal productivity in the economy.