Health Care Expenditure and Human Capital Development in Sub-Saharan Africa

This study investigates the effect of public and out-of-pocket healthcare expenditure on human capital development in selected Sub-Saharan African countries between 2000 and 2023. Human capital development is measured using the Human Capital Index (HCI), computed by the author based on Kraay (2018, World Development Indicators), providing a comprehensive proxy for educational attainment, health outcomes, and productivity potential. Anchored on Human Capital Theory, the study employs a dynamic panel modelling framework comprising Pooled OLS, Fixed Effects, Difference GMM, and System GMM estimators to account for country-specific heterogeneity, endogeneity, and persistence in human capital outcomes. Empirical findings show strong persistence in human capital development, as indicated by the significance of the lagged dependent variable across most models. Government health expenditure exerts a positive and significant effect on human capital development, underscoring the critical role of public investment in improving population health and productivity. Conversely, out-of-pocket expenditure demonstrates a negative relationship in the fixed effects model, highlighting how private health spending burdens households and undermines human capital accumulation. Access to electricity, per capita income, foreign direct investment, and government effectiveness exhibit positive but largely insignificant effects in the short run. Diagnostic tests validate the robustness of dynamic models, with no evidence of second-order serial correlation in GMM estimations. The study concludes that strengthening public health financing and reducing household reliance on out-ofpocket payments are essential for improving human capital formation in Sub-Saharan Africa. It recommends policy reforms aimed at expanding government health budgets, enhancing social protection mechanisms, and improving institutional effectiveness to maximize the developmental impact of health expenditure.