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Stationarity and cointegration of health care expenditure and GDP: evidence from tests with smooth structural shifts

Hyejin Lee (), Dong-Yop Oh () and Ming Meng ()
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Hyejin Lee: Tuskegee University
Dong-Yop Oh: Auburn University at Montgomery
Ming Meng: Fifth Third Bank

Empirical Economics, 2019, vol. 57, issue 2, No 11, 652 pages

Abstract: Abstract This paper studies stationarity and cointegration of healthcare expenditure (HE) and GDP for a sample of OECD countries. In particular, we employ newly developed unit root and cointegration tests which approximate an unknown number of smooth structural shifts in the low-frequency components of a Fourier expansion. The new unit root test indicates that HE and GDP are non-stationary. In the presence of a number of smooth shifts in the cointegration regression, our empirical results support the existence of stochastic comovement between HE and GDP in 14 out of 20 OECD countries. In addition, we examine the income elasticity of HE for the countries that we found cointegration relationship between HE and GDP. We found 13 out of 14 countries with income elasticity of HE higher than 1, which implies that health care is a luxury good.

Keywords: Unit root; Cointegration; Fourier approximation; Healthcare expenditure; OECD (search for similar items in EconPapers)
JEL-codes: C12 C22 C23 I10 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s00181-018-1561-1

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