DOES BICAUSALITY BETWEEN HEALTH AND GROSS DOMESTIC SAVINGS RATES EXIST IN THE SADC?

Abstract

This study has examined the bicausal relationship between health and gross domestic savings rates in SADC countries. The study has drawn from the life cycle demography hypothesis for theoretical basis. The study period is for the years 1990-2009 and the data have been collected from the World Development Indicators and Human Development Index. In particular, a panel vector autoregression (PVAR) model has been used to gauge if shocks to life expectancy will lead to changes or variations in gross domestic savings rate. Monte Carlo analysis has been used to compute 5 percent error bands. The results indicate that shocks to life expectancy do not lead to a change in gross domestic savings rate. Shocks to life expectancy will also account for less than 2% in variations in gross domestic savings rate in the next twenty years. However, shocks to gross domestic savings rates are expected to have an influence on life expectancy in future. This means that if gross domestic savings rates increase, there is a possibility that health status will improve in the region. Government programmes that rely on gross domestic savings to fund health care will have more funds available per given level of income. If governments use the increases in savings, health status in the SADC will rise. The results are robust to various lag lengths. The study is limited in that it has only considered one aspect of savings rates; the gross domestic savings rates. The other limitations are that no optimal lag length could be chosen and has only considered innovation accounting to the exclusion of panel granger causality tests because of software unavailability.