Health Expenditure, Institutional Quality, and Economic Growth: Evidence from EU Countries Outside the Eurozone

This study investigates the relationship between economic growth, health expenditure, institutional quality, gross fixed capital formation, and foreign direct investment in EU countries outside the euro area over the period 2000–2024. The analysis is grounded in neoclassical and endogenous growth theory, with particular emphasis on the role of institutional quality as a conditioning factor in the growth process. Methodologically, this study employs an integrated empirical time-series framework focusing on selected health, institutional and investment-related determinants of growth, including linear and nonlinear unit root tests, structural break analysis, and an Autoregressive Distributed Lag/Error Correction Model (ARDL/ECM) approach to capture both long-run equilibrium relationships and short-run dynamics. ECM-based Granger causality tests are further applied to examine the direction of causal interactions. The results confirm the existence of a long-run cointegration relationship across all countries, although the magnitude and direction of the effects vary considerably. Gross fixed capital formation exerts a robust positive influence on economic growth, while foreign direct investment mainly affects growth in the short run and is highly sensitive to external shocks. Health expenditure contributes to growth through human capital formation, with predominantly lagged effects. Institutional quality is associated with growth dynamics, although the direction and strength of this relationship vary across countries and should be interpreted in light of feedback effects identified in the causality analysis. Overall, the findings highlight significant cross-country heterogeneity and underscore the importance of institutional quality in enhancing the effectiveness of investment and public spending for sustainable economic growth.