THE IMPACT OF HEALTH EXPENDITURE ON ECONOMIC GROWTH IN NORTH MACEDONIA – APPLICATION OF LUCAS MODEL

Abstract

As most empirical evidence indicates, health has a positive impact on economic well-being and contributes to solving fundamental economic problems, this paper aims to analyze the relationship between health expenditures, as an indicator of human capital, and economic growth. In the process of globalization, human capital is a critical factor for an economy based on knowledge. Therefore, applying the Lucas model, the study aims to present the role and analyze the impact of human capital on economic growth in North Macedonia from 2000 to 2019, using econometric analysis of health expenditures time series that are widely accepted in theory and empirical research. In this regard, regression analysis (OLS method) is performed, followed by an examination of the stationarity of the series, as well as an examination of the necessary conditions for selecting the best model from the available alternatives. The results show a positive relationship between health expenditures and economic growth in North Macedonia, while this analysis contributes to the broader literature on the importance of human capital for economic growth in North Macedonia. Moreover, the results show that by adding an additional unit of human capital, the returns on investments in physical capital will be higher. The paper emphasizes the importance of human capital accumulation in North Macedonia, showing that health (measured by health expenditures) is an important factor in understanding the role of human capital in the process of economic growth.