Purpose This study investigates the long-run relationship between public health expenditure and economic growth across 15 major Indian states over the period 1981–2022, with a particular focus on the health-led growth hypothesis and the reciprocal dynamics between healthcare investment and economic performance. Design/methodology/approach The study employs advanced panel econometric techniques that account for cross-sectional dependence and heterogeneity. Second-generation panel unit root tests (CIPS) are used alongside Kao, Pedroni and Westerlund cointegration tests to establish long-run relationships. The common correlated effects mean group (CCEMG) and common correlated effects pooled (CCEP) estimators are applied to estimate long-run elasticities while controlling for variables such as unemployment rate, labour force participation, population growth, public debt and female education. Findings The results confirm a strong long-run cointegrating relationship between public health expenditure and economic growth. Public health spending and labour force participation rate emerge as key drivers of economic performance, both showing statistically significant and positive effects. Specifically, increases in health expenditure contribute positively to state-level economic growth, while higher labour force participation further strengthens growth outcomes. Other control variables exhibit expected signs but are generally less significant. Originality/value This study contributes to the literature by providing a comprehensive state-level analysis for India using second-generation panel techniques that explicitly address cross-sectional dependence and non-stationarity. It advances existing research by integrating multiple cointegration approaches and employing CCE estimators to capture unobserved common factors and regional heterogeneity.
Dixit et al. (Sat,) studied this question.