Abstract
Fiscal sustainability in Malaysia’s public healthcare system has become increasingly important in the face of unprecedented challenges arising from population ageing and macroeconomic volatility. This study aims to analyse the factors affecting the fiscal sustainability of healthcare in Malaysia over the period from 1975 to 2024 using the Autoregressive Distributed Lag (ARDL) model. The Healthcare Fiscal Sustainability Index (HFSI) is used as the dependent variable, while the old-age dependency ratio, real GDP growth rate, labour force participation rate, life expectancy, healthcare inflation rate, and unemployment rate are included as independent variables. The analytical framework is based on three theories: Demographic Transition Theory, Wagner’s Law, and the Fiscal Space Framework. The results indicate that the old-age dependency ratio has the strongest and most statistically significant positive relationship with HFSI in both the long-run and short-run models. The compression of morbidity hypothesis is supported by the significant positive relationship between life expectancy and HFSI. Real GDP growth has a significant positive effect on HFSI in the long run, suggesting that the government should leverage economic growth to strengthen sustainable healthcare financing. Labor force participation is not statistically significant, while the unemployment rate is marginally significant. Overall, the findings indicate that demographic ageing represents a major challenge to the fiscal sustainability of Malaysia’s healthcare system and provide important insights for policymakers to implement proactive measures to ensure long-term fiscal sustainability.
Keywords
- Healthcare Fiscal Sustainability Search this journal for Healthcare Fiscal Sustainability (opens in a new tab)
- Ageing Population Search this journal for Ageing Population (opens in a new tab)
- ARDL Search this journal for ARDL (opens in a new tab)
- Malaysia Search this journal for Malaysia (opens in a new tab)
- Healthcare Expenditure Search this journal for Healthcare Expenditure (opens in a new tab)
References
- Aon. (2026). The global medical trend rates report 2026. https://www.aon.com/en/insights/reports/the-global-medical-trend-rates-report
- Atun, R., Fries, J., Hernández-Villafuerte, K., Müller, M., Ostwald, D. A., & Schmitt, M. (2025). Contribution of investment in health and cancer control to economic growth in Commonwealth countries. eClinicalMedicine, 82, 103180. https://doi.org/10.1016/j.eclinm.2025.103180 DOI: https://doi.org/10.1016/j.eclinm.2025.103180
- Azam, N. A. A. C. A., & Yusuf, M. M. (2024). Socioeconomic factors affecting healthcare expenditures in selected Asian countries. International Journal of Management, Finance and Accounting, 5(2), Article 8. https://doi.org/10.33093/ijomfa.2024.5.2.8 DOI: https://doi.org/10.33093/ijomfa.2024.5.2.8
- Azreen, M. Z. S., Effendi, N. A., & Shafai, N. A. (2022). The impact of government expenditure on economic growth in Malaysia. Advances in Business Research International Journal, 8(1), 21–32. https://doi.org/10.24191/abrij.v8i1.17823 DOI: https://doi.org/10.24191/abrij.v8i1.4295
- Biase, P. D., Dougherty, S., & Lorenzoni, L. (2022). Ageing and the long-run fiscal sustainability of health care across levels of government. OECD Working Papers on Fiscal Federalism, 38, 1–37. https://doi.org/10.1787/7c184406-en DOI: https://doi.org/10.1787/7c184406-en
- Boutfssi, A., Zizi, Y., & Quamar, T. (2026). Short-run inertia and long-run adjustment in bank credit: An ARDL–ECM analysis of monetary transmission in an emerging economy. Journal of Risk and Financial Management, 19(3), Article 195. https://doi.org/10.3390/jrfm19030195 DOI: https://doi.org/10.3390/jrfm19030195
- Brooks, C. (2023). Introductory econometrics for finance (5th ed.). Cambridge University Press.
- Cardoso, F. C., Berri, R. A., Lucca, G., Borges, E. N., & De Mattos, V. L. D. (2023). Normality tests: A study of residuals obtained on time series tendency modeling. Exacta, 23(1), Article 134. https://doi.org/10.5585/2023.22928 DOI: https://doi.org/10.5585/2023.22928
- Cylus, J., & Al Tayara, L. (2021). Health, an ageing labor force, and the economy: Does health moderate the relationship between population age-structure and economic growth? Social Science & Medicine, 287, Article 114353. https://doi.org/10.1016/j.socscimed.2021.114353
- Cylus, J., & Al Tayara, L. (2021). Health, an ageing labor force, and the economy: Does health moderate the relationship between population age-structure and economic growth? Social Science & Medicine, 287, 114353. https://doi.org/10.1016/j.socscimed.2021.114353 DOI: https://doi.org/10.1016/j.socscimed.2021.114353
- Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427–431. https://doi.org/10.1080/01621459.1979.10482531 DOI: https://doi.org/10.1080/01621459.1979.10482531
- Dunn, A., Grosse, S. D., & Zuvekas, S. H. (2018). Adjusting health expenditures for inflation: A review of measures for health services research in the United States. Health Services Research, 53(1), 175–196. https://doi.org/10.1111/1475-6773.12612 DOI: https://doi.org/10.1111/1475-6773.12612
- Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236 DOI: https://doi.org/10.2307/1913236
- Granger, C. W. J., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2(2), 111–120. https://doi.org/10.1016/0304-4076(74)90034-7 DOI: https://doi.org/10.1016/0304-4076(74)90034-7
- Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill.
- Hair, J. F., Page, M., & Brunsveld, N. (2021). Essentials of business research methods (5th ed.). Routledge.
- Hartman, M., Martin, A. B., Lassman, D., & Catlin, A. (2026). National health care spending increased 7.2 percent in 2024 as utilization remained elevated. Health Affairs, 45(2), 110–120. https://doi.org/10.1377/hlthaff.2025.01683 DOI: https://doi.org/10.1377/hlthaff.2025.01683
- Iuga, I. C., Nerişanu, R. A., & Iuga, H. (2024). The impact of healthcare system quality and economic factors on the older adult population: A health economics perspective. Frontiers in Public Health, 12, Article 1454699. https://doi.org/10.3389/fpubh.2024.1454699 DOI: https://doi.org/10.3389/fpubh.2024.1454699
- Kuri, B.C., Nahiduzzaman, M., Dhar, B.K., Shabbir, R., Karim, R., (2024). Macroeconomic drivers of sustainable tourism development in Bangladesh: an ARDL bounds testing approach. Sustain. Dev. https://doi.org/10.1002/sd.3328 DOI: https://doi.org/10.1002/sd.3328
- Laurenceson, J., & Chai, J. C. H. (2003). Financial reform and economic development in China. Edward Elgar Publishing. https://doi.org/10.4337/9781843767190 DOI: https://doi.org/10.4337/9781843767190
- Lim, M. Y., Kamaruzaman, H. F., Wu, O., & Geue, C. (2023). Health financing challenges among ASEAN: A systematic review. Archives of Public Health, 81, Article 148. https://doi.org/10.1186/s13690-023-01159-3 DOI: https://doi.org/10.1186/s13690-023-01159-3
- Mohd, S. N. A., Ishak, A. A., & Selvaratnam, D. P. (2021). Ageing population’s impact on economic growth in Malaysia from 1981 to 2019: Evidence from an autoregressive distributed lag approach. Frontiers in Public Health, 9, Article 731554. https://doi.org/10.3389/fpubh.2021.731554 DOI: https://doi.org/10.3389/fpubh.2021.731554
- Moideen, M. A., Yaakob, W. N. W. M. A., & Malek, K. A. (2025). Towards a sustainable healthcare system: A concept paper for a national hybrid financing model for Malaysia. International Journal of Health Policy and Management, 14(1), Article 9223. https://doi.org/10.34172/ijhpm.9223 DOI: https://doi.org/10.34172/ijhpm.9223
- Narayan, P. K., & Narayan, S. (2004). Estimating income and price elasticities of imports for Fiji in a cointegration framework. Economic Modelling, 22(3), 423–438. https://doi.org/10.1016/j.econmod.2004.06.004 DOI: https://doi.org/10.1016/j.econmod.2004.06.004
- Nasir, N. M., Nasir, Z. A., Fahami, N. A., Kusairee, M. A. Z. A., & Ramli, K. (2021). Malaysia’s healthcare expenditure: ARDL bound test. Advances in Business Research International Journal, 7(2), 267–275. https://doi.org/10.24191/abrij.v7i2.4197 DOI: https://doi.org/10.24191/abrij.v7i2.4197
- Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed-lag modelling approach to cointegration analysis. In S. Strøm (Ed.), Econometrics and economic theory in the 20th century: The Ragnar Frisch Centennial Symposium (pp. 371–413). Cambridge University Press. https://doi.org/10.1017/CCOL521633230 DOI: https://doi.org/10.1017/CBO9781139052221.011
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616 DOI: https://doi.org/10.1002/jae.616
- Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335 DOI: https://doi.org/10.1093/biomet/75.2.335
- Raihan, A., Ibrahim, S., Ridwan, M., Rahman, M. S., Bari, A. B. M. M., & Guneysu Atasoy, F. (2025). Role of renewable energy and foreign direct investment toward economic growth in Egypt. Innovation and Green Development, 4(1), Article 100185. https://doi.org/10.1016/j.igd.2024.100185 DOI: https://doi.org/10.1016/j.igd.2024.100185
- Ramsey, J. B. (1969). Tests for specification errors in classical least-squares regression analysis. Journal of the Royal Statistical Society: Series B (Methodological), 31(2), 350–371. https://doi.org/10.1111/j.2517-6161.1969.tb00796.x DOI: https://doi.org/10.1111/j.2517-6161.1969.tb00796.x
- Reeves, A., Gourtsoyannis, Y., Basu, S., McCoy, D., McKee, M., & Stuckler, D. (2015). Financing universal health coverage—effects of alternative tax structures on public health systems: cross-national modelling in 89 low-income and middle-income countries. The Lancet, 386(9990), 274–280. https://doi.org/10.1016/s0140-6736(15)60574-8 DOI: https://doi.org/10.1016/S0140-6736(15)60574-8
- Riaz, M. F., Sarwar, A., Javaid, M. F., & Bukhari, K. (2024). Impacts of healthcare spending, labor force participation rate, and human development on economic productivity in the short and long term: A dynamic panel analysis. Journal of Policy Research, 10(2), 525–532. https://doi.org/10.61506/02.00264 DOI: https://doi.org/10.61506/02.00264
- Sum, D. J., & Mansor, N. (2025, July 4). Aging Malaysia needs stronger fiscal planning. ASEAN+3 Macroeconomic Research Office (AMRO). https://amro-asia.org/aging-malaysia-needs-stronger-fiscal-planning
- Tang, B., Li, Z., Liu, Y., & Zhu, F. (2025). Transforming healthcare through value: A fiscal perspective on OECD countries. Risk Management and Healthcare Policy, 18, 479–490. https://doi.org/10.2147/RMHP.S504275 DOI: https://doi.org/10.2147/RMHP.S504275
- Team, C. (2024, August 19). Coefficient of determination. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/data-science/coefficient-of-determination
- Williams, G. (2005). Fiscal space and sustainability from the perspective of the health sector. The Policy Practice. https://thepolicypractice.com/sites/default/files/2020-05/fiscalspacehealth.pdf
- Yusof, Y., Kalirajan, K., & Mohamad, A. (2020). Fiscal decentralization and convergence in government spending in Malaysia. International Journal of Finance & Economics, 27(3), 2669–2681. https://doi.org/10.1002/ijfe.2293 DOI: https://doi.org/10.1002/ijfe.2293
Downloads
Full-text downloads recorded for this article, by month.
No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.
How to Cite
Share this article
License
Copyright (c) 2026 Nadiah Nabihah Shahrom (Author); Dr Masturah Ma’in (Corresponding Author); Muhamad Firdaus Madani Mahmud, Mohamad Idham Md Razak, Noraziah Che Arshad, Mimie Marldiana Mohamad Jamal Khir (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
Keywords
- Healthcare Fiscal Sustainability Search this journal for Healthcare Fiscal Sustainability (opens in a new tab)
- Ageing Population Search this journal for Ageing Population (opens in a new tab)
- ARDL Search this journal for ARDL (opens in a new tab)
- Malaysia Search this journal for Malaysia (opens in a new tab)
- Healthcare Expenditure Search this journal for Healthcare Expenditure (opens in a new tab)
Section
Published
Submissions
Have research to publish? Information Management and Business Review welcomes submissions.
Make a Submission