Health Expenditure and Sectoral Total Factor Productivity in Morocco: A Dynamic Panel Analysis

Abstract

This paper analyzes the relationship between health expenditure and sectoral total factor productivity (TFP) in Morocco over the period 2014–2020. The analysis uses panel data covering 44 economic sectors. TFP is estimated from a Cobb–Douglas production function using the Olley and Pakes (1996) methodology to correct for simultaneity and selection bias. A dynamic panel model is then estimated using the System Generalized Method of Moments (GMM) to address endogeneity and unobserved heterogeneity. The results indicate strong persistence in sectoral TFP, consistent with path-dependent productivity dynamics. Household health expenditure has a positive and statistically significant effect on productivity. Public health expenditure is negatively associated with TFP, raising concerns over efficiency and resource allocation. Health-related investment and intermediate expenditures do not exhibit robust productivity effects across sectors. The findings reveal heterogeneous productivity returns across health spending components. The results point to the predominance of household-driven health investments in supporting sectoral productivity gains. Policy implications point to prioritizing household-level health support and reforming public expenditure management to reduce inefficiencies. Targeted, decentralized interventions yield higher productivity gains than broad public programs. The study provides sector-level evidence from a developing economy, informing health and industrial policy design.