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Multivariate Granger Causality and the Dynamic Relationship between Health Care Spending, Income and Relative Price of Health Care in Malaysia

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  • Tang, Chor Foon

Abstract

This study employs the Granger causality test within a multivariate cointegration and error-correction framework to investigate the relationship between health care spending, income and relative price in Malaysia. This study covers the annual sample from 1970 to 2009. The main findings of this study are that in the short-run there is uni-directional Granger causality running from relative price to health care spending, while relative price and income are bidirectional Granger causality in Malaysia. In the long-run health care spending and income are bi-directional Granger causality, while there is uni-directional Granger causality running from relative price to health care spending and income. In addition, we also extend the study to examine the dynamic interaction between the variables in the system through the forecast error variance decomposition and impulse response function analyses. In line withth e finding of Granger causality, all the variables behaved endogenously in the long-run. Thus, the variables are Granger-causes each other in the long-run even though there might be deviations in the short-run.

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Bibliographic Info

Article provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.

Volume (Year): 52 (2011)
Issue (Month): 2 (December)
Pages: 199-214

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Handle: RePEc:hit:hitjec:v:52:y:2011:i:2:p:199-214

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Related research

Keywords: Causality; Cointegration; Healthcare spending; Growth; Malaysia;

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  1. Hartwig, Jochen, 2008. "What drives health care expenditure?--Baumol's model of 'unbalanced growth' revisited," Journal of Health Economics, Elsevier, vol. 27(3), pages 603-623, May.
  2. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
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  4. Hitiris, Theo & Posnett, John, 1992. "The determinants and effects of health expenditure in developed countries," Journal of Health Economics, Elsevier, vol. 11(2), pages 173-181, August.
  5. Chor Foon Tang, 2009. "An Examination of the Government Spending and Economic Growth Nexus for Malaysia Using the Leveraged Bootstrap Simulation Approach," Global Economic Review, Taylor & Francis Journals, vol. 38(2), pages 215-227.
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  12. Hallam, David & Zanoli, Raffaele, 1993. "Error Correction Models and Agricultural Supply Response," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(2), pages 151-66.
  13. Nancy Devlin & Paul Hansen, 2001. "Health care spending and economic output: Granger causality," Applied Economics Letters, Taylor & Francis Journals, vol. 8(8), pages 561-564.
  14. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August.
  15. George Kapetanios, 2002. "Unit Root Testing against the Alternative Hypothesis of up to m Structural Breaks," Working Papers 469, Queen Mary, University of London, School of Economics and Finance.
  16. Jack, William & Lewis, Maureen, 2009. "Health investments and economic growth : macroeconomic evidence and microeconomic foundations," Policy Research Working Paper Series 4877, The World Bank.
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