Asymmetric Effects of Oil Price on Health Expenditure in Some Selected OPEC Countries

Abstract

Oil prices affect economic activity, especially for countries that rely on oil revenue for budgeting. Whenever the price of oil affects a country, expenditure on economic activities is affected through budgetary allocation. A negative change in oil prices not only affects allocation in the economy but may also lead to deficit financing, and other sectors of the economy may be affected as well. Therefore, this study examined the asymmetric effects of oil prices on health expenditure in selected OPEC countries (United Arab Emirates, Saudi Arabia, Iraq, Nigeria, and Algeria). These countries are the world's top oil producers and spend less than 6% of their Gross Domestic Product (GDP) on healthcare. The study relied on demand for health theory to structure the estimation models. Data were retrieved from 2000 to 2022 for empirical analysis from the World Development Indicators (WDI, 2023) and the World Bank Commodity Price Data (WCPD, 2023). The study used Welch's T-test, panel Autoregressive Distributed Lag (ARDL) and panel Non-linear Autoregressive Distributed Lag (NARD) to estimate models. The results showed that the burden of health expenditure fell more heavily on households in Nigeria and Iraq. Also, there exist symmetric and asymmetric relationships between oil prices and the two types of health expenditures in the long run. Specifically, a reduction in oil prices hurts both government health expenditure (-0.0096) and out-of-pocket health expenditure (-0.0091). This implies that the government's reduction in health expenditure is due to the fall in oil prices. Based on these results, the governments of these countries should be sensitive and closely monitor health expenditure during oil booms and busts to achieve a healthy economy, as proposed in the SDGs. Specifically, increasing government health expenditure will help improve their health sector activities during oil booms and crunches.