The Lack of Public Health Spending and Economic Growth in Russia: A Regional Aspect
This essay investigates the influence of an increase of government healthcare expenditures on regional economic growth in Russia. This particular fiscal policy measure can significantly stimulate recovery of the regional economy after the crisis caused by COVID-19 pandemic. Studies have shown that an increase in healthcare expenditures stimulates an increase of gross domestic product through several channels. First, it improves the quality of the labor force that can lead to an increase of labor productivity. Secondly, an increase in the productivity and size of the labor force leads to consumption extension and then to firms’ income growth, so there is a multiplication effect. Including the presupposition that the relationship between healthcare expenditures and economic growth may be non-linear we formed the hypothesis of the existence of the optimal share of health expenditure in gross regional product that maximizes the impact on regional economic growth. Focusing on data from 2005 to 2018, we used the spatial Durbin model to show that this optimal share is 5.9% with an inclusion of spatial effects and 6.4% without them, outlining the importance of considering the interconnection between Russian regions. The regional statistical analysis showed the failure to reach the recommended share by most Russian regions, which can be viewed as a possibility of the future economic growth stimulation if there is an increase of governmental spending on healthcare.