FDI and Health Expenditure Dynamics in ASEAN

Abstract Background: Given ASEAN’s steadily increasing levels of foreign direct investment over time, it is imperative to understand how FDI can assist to improve healthcare capacity level which will help the country stay on course to achieve target 3 of the Sustainable Development Goals (SDG) of achieving equal health by 2030. Health is important for any country’s economic development and has been a major goal under United Nations assigned Sustainable Development Goals. Health expenditure is a necessity good at the state level. Studies suggest although globalization is an important engine of growth, role of globalization in health has been rarely studied. Some of the traditional benefits include technology transfer and human skills. Its impact on health been under-investigated. In this paper we aim to understand the dynamics between FDI and health expenditure in ASEAN. Three models, ordinary least square, Quantile and two stage least square regression using Instrumental variables were employed to test the relationship between FDI and healthcare expenditure. Instrumental variables include market size, population health and labor productivity.Results: The correlation index showed that except labor productivity, all variables were strongly correlated. The OLS and quantile regression confirmed that the market size, population health and labor productivity are significant for health expenditure for ASEAN. In the 2SLS instrumental approach, the study finds that there is a strong causal relation between FDI and health expenditure.Conclusion: Our results confirms that FDI is an important factor of human capital and influences the health expenditure capacity of a country in a short and long run. We advocate that the potential of FDI in building nation’s healthcare expenditure capacity is very critical and should be included in policy making. This is among very rare studies which has tested the role of FDI on health expenditure.