.w demand tends to be inelastic for the affluent but elastic for the vulnerable indigent population segments [63]. The response of health care spending to changes in national resources can be a gauge of the proportionate change in health care investment arising from a given change in national income (GDP) and the external assistance (ODA) supplement. Past econometric stud- ies using macroeconomic data and different estimation meth- ods agree that the OECD countries spend disproportionately more on health from a given rise in GDP [18]. This is taken to imply that the marginal health spending in the aggregate, across payers (patients, insurers, governments, non-governmental or- ganizations), in high-income countries provide more subjective 'care' than physiological 'cure'. This makes OECD health a technical 'luxury' good, a finding that tends to be robust against alternative model specifications, data sets, and the time periods studied. The 'basic needs' approach to economic development con- siders health care as a 'basic need' -a necessity akin to ed- ucation, shelter, and food. The estimated income elasticity of health care expenditure can inform sound policy because income is the major determinant of health care expenditure. Consequently, if health care spending in the African coun- tries behaves similarly like a 'luxury' commodity, what are the implications for human capital investments in health and economic development for the period following structural ad- justments and austerity? If African health care spending tends towards 'necessity' good values, can an extra health care spending be viewed (in contrast to the findings for OECD data) as providing 'cure' (that is, physiological benefits suchhgfedcbaZYXWVUTSRQPO <fl Health Care Management Science 8,267-276,2005EDCBA _ © 2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.CBA Analysis and Implications of the Determinants of Healthcare Expenditure in African Countries ALBERT A. OKUNADE Department of Economics, Office 450BB, The Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152, USA E-mail: aokunade@memphis.edu Received November 2004; accepted April 2005 Abstract. The income elasticity of health care spending in the OECD countries tends toward luxury good values. Similar studies, based on more recent data, and capable of informing macroeconomic health policies of the African countries, do not currently exist. How the health care expenditure in Africa responds to changes in the Gross Domestic Products (GDP), Official Development Assistance (ODA), and other determinants, is also relevant for health policy because health care is a necessity in the 'basic needs' theory of economic development. This paper presents econometric model findings of the determinants of per-capita health expenditure (in PPPs) for 26 African countries, using the flexible Box-Cox model regression methods and 1995 cross-sectional data (sources: WRI, UNEP, UNDP, The World Bank). The economic and other determinants, capturing 74 percent of the variations in health expenditures, include per-capita GDP (in PPPs), ODA CUSS),Gini income inequality index, population dependency ratio, internal conflicts, and the percentage of births attended by trained medical workers. Income inequality dampens, while the ODA and population per health personnel raise health care expenditure. The GDP elasticity of about 0.6 signals the tendency for health care to behave like a technical 'necessity: Implications for sustainable basic health development policies are discussed. Keywords: African countries, health care expenditure, GDP, ODA, basic needs, health policy 1. Introduction Practically all of the African countries that sought official de- velopment assistance (ODA) funds from international develop- ment financial institutions (IFIs), in the 1980s to early 1990s, endured stringent macroeconomic structural adjustment pro- grams (SAP) and related 'reform' mandates (e.g., reduced gov- ernment deficit, exchange rate liberalization, central govern- ment divestments, greater privatization of certain industries, etc.) of these agencies. These difficult adjustments [22] are thought to have produced net declines in the provision of essen- tial 'basic human needs' (food, housing, clothing, health, and education), as the pre-reform domestic government shares of these expenditures were typically large. As a result, the United Nations in 1991 developed the 'human expenditure ratio' (the percent of GDP for priority education, health, and other social welfare) to monitor basic needs provision and avert further cuts. The benefit of targeting health as an integral aspect of the 'human development index' (longevity, knowledge, living standards) lies in its capacity, as human capital, to spur poten- tially sustainable human development and economic progress [46]. The post-SAP era in Africa slowly began to emerge in the mid 1990s. The objective of this paper is to construct and estimate econometric models of the socio-economic and demographic determinants of post-SAP health care spending for a cross- section of the developing African countries. Policy suggestions deriving from the estimated models are discussed in the light of basic health care needs in economic development. Health care