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Health care expenditures and GDP in Latin American and OECD countries: a comparison using a panel cointegration approach

Alejandro F. Rodríguez () and Nieves Valdes ()
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Alejandro F. Rodríguez: Universidad de Talca

International Journal of Health Economics and Management, 2019, vol. 19, issue 2, No 1, 115-153

Abstract: Abstract This paper provides empirical evidence of the existence of a long-run causal relationship between GDP and health care expenditures, for a group of Latin American and the Caribbean countries and for OECD countries for the period 1995–2014. We estimated the income elasticity of health expenditure to be equal to unity for both groups of countries, that is, health care in Latin American and OECD countries is a necessity rather than a luxury. We did not find evidence of a causal effect in the opposite direction, i.e. from changes in health expenditure to GDP. We present conclusive evidence of the cross-country dependence of the analyzed series, and consequently we used panel unit root tests, panel cointegration tests, and long-run estimates that are robust to such dependence. Specifically, we use the CIPS panel unit root test and the panel Common Correlated Effects estimator. We also show that the results obtained by mistakenly using methods that assume cross-section independence are unstable.

Keywords: Income elasticity of health care expenditures; Panel cointegration; Cross-section dependence; Latin American and the Caribbean and OECD countries (search for similar items in EconPapers)
JEL-codes: I15 I18 H51 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10754-018-9250-3

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International Journal of Health Economics and Management is currently edited by Leemore Dafny, Robert Town, Mark Pauly, David Dranove and Pedro Pita Barros

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