Social security expenditure and GDP in OECD countries: A cointegrated panel analysis

Chien-Chiang Lee () and Chun-Ping Chang

International Economic Journal, 2006, vol. 20, issue 3, 303-320

Abstract: Using panel data unit root tests and panel cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as the full modified OLS, this paper re-examines the long-run co-movement and the causal relationship between GDP and social security expenditure in a bivariate model, employing data on 25 OECD countries from 1980 to 2001. Our cointegration test results show strong evidence in favour of the existence of a long-run equilibrium cointegrating relationship between GDP and social security expenditure after allowing for a heterogeneous country effect. Regarding the panel-based error correction model, we find that GDP and social security expenditure lack short-run causality, but reveal the existence of long-run bidirectional causality. This shows that, in the long run, economic growth must be based on a social welfare policy that should be carried out, and economic growth can facilitate contiguous development in a social welfare policy. Lastly, we also provide evidence to support that social security expenditure can affect growth through the savings and human capital accumulation in OECD countries.

Keywords: Social security expenditure; economic growth; panel cointegration; causality (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (10)

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DOI: 10.1080/10168730600879372

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