An important component of human capital formation is
improvements in the health status of the population.1 Improvements in
the health status of a nation can lead to longer life expectancy, shift
the labour supply curve outward, increase labour productivity, and
increase the productivity of investment in other forms of human capital,
particularly education. Since health and the capacity to improve health
are related to socio-economic conditions, it is important to analyse the
impact of changes in these variables on the provision of health
services. Due to the presence of externalities, market failures, and
inability of a significant proportion of the population to pay,
government intervention is required in the health sector. In this study,
we shall analyse the changes in the provision of public health resources
in Pakistan, in response to the changes in socio-economic factors. Most
empirical studies in this area have been cross-country studies. Fulop
and Reinke (1983) emphasise that socio-economic factors affect the
health status directly and indirectly. The indirect effect is through
the changes in health resources in response to the changes in
socio-economic factors. Kleiman’s (1986) cross-country analysis shows
that per capita national income, the ratio of government consumption
expenditure to private consumption expenditure, and the measure of
income inequality are important determinants of public expenditure on
health. The study also shows that public and private expenditure on
health are good if not a perfect substitute for each other.