The impact of public spending on health: does money matter?

Abstract

We use cross-national data to examine the impact of both public spending on health and non-health factors (economic, educational, cultural) in determining child (under-5) and infant mortality. There are two striking findings. First, the impact of public spending on health is quite small, with a coefficient that is typically both numerically small and statistically insignificant at conventional levels. Independent variation in public spending explains less than one-seventh of 1% of the observed differences in mortality across countries. The estimates imply that for a developing country at average income levels the actual public spending per child death averted is $50,000–100,000. This stands in marked contrast to the typical range of estimates of the cost effectiveness of medical interventions to avert the largest causes of child mortality in developing countries, which is $10–4000. We outline three possible explanations for this divergence of the actual and apparent potential of public spending. Second, whereas health spending is not a powerful determinant of mortality, 95% of cross-national variation in mortality can be explained by a country’s income per capita, inequality of income distribution, extent of female education, level of ethnic fragmentation, and predominant religion.

Introduction

In 1995 over nine million children, under five years, in developing countries died avoidable deaths: more than the entire population of Sweden or Zambia.¹ The cumulative human suffering in the individual and familial tragedies behind these statistics is overwhelming and creates a powerful impetus to action. Towards the aim of supporting effective action we examine the determinants of these differences in the widest and best measured indicators of health status: child (under-5 years) and infant mortality. We establish two major points about the cross-national relationship between health status and public spending on health.²

First, there is an enormous gap between the apparent potential of public spending to improve health status and the actual performance. Reviews of the cost effectiveness of preventive and primary curative interventions suggest that a significant fraction of under five deaths could be avoided for as little as $10, and in many cases under $1000, per death averted (Jamison et al., 1993). However, in practice, cross-national differences in public spending on health account for essentially none (one seventh of 1%) of the differences in health status. This extremely small actual association estimated from the cross-national data implies that the typical public spending on health per child death averted in developing countries is $50,000 to 100,000. This is a striking discrepancy between the apparent potential and actual performance.

Second, while public spending appears to explain little, the differences across countries in infant and child mortality are well explained by economic and social factors. The finding that ‘development’ is strongly associated with improvements in mortality is neither surprising nor new (Caldwell, 1986, World Bank, 1993). What is perhaps surprising is the strength of the relationship as essentially all (95%) of the cross-national variations in either under-5 or infant mortality can be explained by just five factors: the average level of income, the distribution of income, the extent of female education, the extent of ethno-linguistic differences within a country, and whether a country is predominately Muslim. While there are poor countries with exceptionally good health status, properly accounting for income and other economic determinants leaves little to be explained by independent variations in health policy.