The Direction of Causality between Health Spending and GDP: The Case of Pakistan

Adnan Haider and M. Sabihuddin Butt

MPRA Paper from University Library of Munich, Germany

Abstract: Relevant literature suggests that the most important determinant of health care spending is real GDP. Moreover, there is considerable evidence that health care spending rises at a faster rate than real GDP. This paper uses recently developed tests for the existence of a long run relationship to analyze the links between health care spending and GDP. We are, particularly, interested in estimating the elasticity parameter. The aim of the paper is to provide a new method of analysis to those used in recent papers on this subject. Typically in applied analysis, testing for the existence of cointegration and causality can only be carried out once the time series properties of the data have been established. For example, tests for cointegration require the variables to integrated of the same order, typically I(1), prior to estimation. By eliminating the need for unit root pre-testing, the tests applied here considerably simplify the inference procedure. They also reduce the potential for distortions in the inference due to the unknown properties of the testing sequence. Our findings include robust evidence that, for Pakistan, the income elasticity for health care spending is greater than one and that the elasticity value is stable over the estimation period.

Keywords: Health Spending; GDP; Causality (search for similar items in EconPapers)
JEL-codes: C12 C22 H51 (search for similar items in EconPapers)
Date: 2006-08-15, Revised 2006-12-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Pakistan Economic and Social Review 1.45(2007): pp. 125-140

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