Cross-country Medical Expenditure Modeling Using OECD Panel Data and ARDL Approach: Investigating GDP, Technology, and Aging Effects

Albert Okunade, Xiaohui You and Kayhan Koleyni

A chapter in Health Econometrics, 2018, vol. 294, pp 327-358 from Emerald Group Publishing Limited

Abstract: The search for more effective policies, choice of optimal implementation strategies for achieving defined policy targets (e.g., cost-containment, improved access, and quality healthcare outcomes), and selection among the metrics relevant for assessing health system policy change performance simultaneously pose continuing healthcare sector challenges for many countries of the world. Meanwhile, research on the core drivers of healthcare costs across the health systems of the many countries continues to gain increased momentum as these countries learn among themselves. Consequently, cross-country comparison studies largely focus their interests on the relationship among health expenditures (HCE), GDP, aging demographics, and technology. Using more recent 1980–2014 annual data panel on 34 OECD countries and the panel ARDL (Autoregressive Distributed Lag) framework, this study investigates the long- and short-run relationships among aggregate healthcare expenditure, income (GDP per capita or per capita GDP_HCE), age dependency ratio, and “international co-operation patents” (for capturing the technology effects). Results from the panel ARDL approach and Granger causality tests suggest a long-run relationship among healthcare expenditure and the three major determinants. Findings from the Westerlund test with bootstrapping further corroborate the existence of a long-run relationship among healthcare expenditure and the three core determinants. Interestingly, GDP less health expenditure (GDP_HCE) is the only short-run driver of HCE. The income elasticity estimates, falling in the 1.16–1.46 range, suggest that the behavior of aggregate healthcare in the 34 OECD countries tends toward those for luxury goods. Finally, through cross-country technology spillover effects, these OECD countries benefit significantly from international investments through technology cooperations resulting in jointly owned patents.

Keywords: Healthcare expenditures; OECD countries; panel ARDL modeling; cross-sectional dependence; income elasticity; policy (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ceazzz:s0573-855520180000294018

DOI: 10.1108/S0573-855520180000294018

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