The Effect of Public Health Expenditure on Health Outcomes in Ethiopia

Background Health spending is crucial for improving population health, especially in low-income countries like Ethiopia. This study examines the relationship between public health expenditure and health outcomes—life expectancy and infant mortality—from 1980/81 to 2023/24, based on Grossman’s health capital theory. Methods Using annual time-series data from 1980 to 2024, this study employs the Auto-Regressive Distributed Lag bounds testing approach to analyze both short- and long-term relationships between public health expenditure and health outcomes (life expectancy and infant mortality rate). The empirical model incorporates GDP per capita, population growth rate, insurance/financial services, and health service variables such as DPT (Diphtheria, Pertussis, and Tetanus) and measles immunization rates. The robustness of the models were verified through Fully Modified Ordinary Least Squares (FMOLS) and Canonical Co-integration Regression (CCR) techniques. Results The findings reveal a significant long-term positive relationship between public health expenditure and life expectancy. GDP per capita and insurance/financial services also positively and significantly influence life expectancy. In contrast, while health spending appears to reduce infant mortality, the relationship is not statistically significant in the long run. DPT (Diphtheria, Pertussis, and Tetanus) immunization coverage significantly reduces infant mortality and increases life expectancy, while measles immunization shows an unexpected positive association with mortality—likely due to targeted interventions in high-risk regions. Population growth negatively affects life expectancy and positively influences infant mortality, reflecting systemic healthcare strain. Conclusions Public health expenditure in Ethiopia plays a vital role in improving life expectancy but has a statistically insignificant effect on reducing infant mortality. The study underscores the need for strategic allocation of health budgets, integration of immunization programs with broader public health initiatives, and expansion of insurance coverage. Policymakers should also address broader social determinants, such as population pressure and income inequality, to maximize health outcomes. Future research should explore regional disparities to better tailor interventions.