Assessing the impact of government healthcare expenditure and life expectancy on economic growth in Saudi Arabia: an econometric time-series study (2000–2023)

Saudi Arabia has experienced remarkable growth in government spending on healthcare in the last 20 years, which is why the linkage between these investments and economic development has not been thoroughly researched. This paper discusses both the direct and indirect implications of healthcare expenditure on the growth of the GDP, taking life expectancy as a possible intermediary in this regard, within the aims of Vision 2030, toward healthcare modernization and economic diversification. Data related to annual time series (2000–2023) were obtained from both the World Bank and the WHO databases. The dependent variable was GDP growth, and the independent variables were government healthcare spending, and the mediator variable was life expectancy, and the control variables were trade openness, and unemployment. Econometric models and Vector Error Correction Model (VECM), were used to identify both the short-run relationship and the long-run relationship, and the mediation analysis with the help of Hayes PROCESS macro (Model 4) with bootstrap sampling was used to examine the indirect impact of life expectancy. The VECM supported the existence of a strong and constant long-run equilibrium between healthcare expenditure and GDP at an estimated long-run elasticity, implying that an increase in healthcare spending has the effect of promoting long-term economic growth. Although healthcare spending is positively associated with life expectancy, the mediation process via life expectancy did not convey the economic effect, which means that health benefits add to growth indirectly and over a longer period. The effects of this interaction were a suppression effect, implying that structural and fiscal elements do affect the conversion of health gains into economic performance. Healthcare expenditure in Saudi Arabia improves population health and promotes economic stability in the long term, but the short-term effects on the GDP are limited by fiscal and labor-market forces. Health investments should then be combined with policies that can generate better workforce participation, higher productivity, and enhance institutions’ efficiency to achieve the full economic potential of better health outcomes.