Financial Development, Governance, Environmental Pressure, and Health Expenditure: A Panel Analysis

Background Rising health expenditure has become a major policy concern in middle-income countries, where industrial expansion, financial development, trade integration, and environmental stress increasingly shape healthcare demand and cost. Objective This study investigates how industrialization, carbon emissions, foreign direct investment, financial development, trade openness, and renewable energy affect health expenditure in lower-middle- and upper-middle-income countries from 1995 to 2023. Methods The study applies panel econometric techniques that account for cross-sectional dependence, slope heterogeneity, endogeneity, and long-run asymmetry. Long-run relationships are estimated through Dynamic Common Effects and instrumental-variable Dynamic Common Effects models. Asymmetric effects are examined using a nonlinear autoregressive distributed lag framework. Results The findings show that industrialisation, foreign direct investment, carbon emissions, financial development, and trade openness increase health expenditure. Renewable energy reduces health expenditure. Among all explanatory factors, carbon emissions produce the strongest upward effect on healthcare costs. The results remain consistent across alternative estimators. Health and Social Implication: The findings indicate that environmental degradation and unsustainable growth patterns intensify disease burden, increase pressure on health systems, and raise both public and household medical spending. These effects can deepen social inequality by imposing higher costs on vulnerable groups. The evidence suggests that cleaner energy adoption, stronger environmental regulation, and sustainability-oriented financial and governance frameworks can help reduce long-run healthcare costs while improving public health and social welfare.