Can Baumol's model of unbalanced growth contribute to explaining the secular rise in health care expenditure? An alternative test
AbstractIn a recent paper, I argued that Baumol's model of 'unbalanced growth' offers a ready explanation for the observed secular rise in Health Care Expenditure (HCE) in rich countries. Baumol's model implies that HCE is driven by wage increases in excess of productivity growth. I tested this hypothesis empirically, using data from a panel of 19 Organization for Economic Cooperation and Development (OECD) countries and found robust evidence in favour of Baumol's theory. An alternative way to test Baumol's theory is to check whether its implication that variations in the relative price of medical care contribute significantly to explaining variations in health expenditure in the same direction has an empirical grounding. Earlier studies, although mostly not in an explicit attempt to test Baumol's theory, have occasionally rejected this hypothesis. Despite poor data quality of the available medical price indices, I perform the alternative test using data for nine OECD countries. My findings suggest that the relative price of medical care is in fact a statistically significant explanatory variable for health expenditure, thus lending support to Baumol's theory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 43 (2011)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAEC20
Other versions of this item:
- Jochen Hartwig, 2007. "Can Baumol's Model of Unbalanced Growth Contribute to Explaining the Secular Rise in Health Care Expenditure? An Alternative Test," KOF Working papers 07-178, KOF Swiss Economic Institute, ETH Zurich.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- I10 - Health, Education, and Welfare - - Health - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Colombier, Carsten, 2012. "Drivers of health care expenditure: Does Baumol's cost disease loom large?," FiFo Discussion Papers - Finanzwissenschaftliche DiskussionsbeitrÃ¤ge 12-5, University of Cologne, FiFo Institute for Public Economics.
- Bates, Laurie J. & Santerre, Rexford E., 2013. "Does the U.S. health care sector suffer from Baumol's cost disease? Evidence from the 50 states," Journal of Health Economics, Elsevier, vol. 32(2), pages 386-391.
- Potrafke, Niklas, 2010.
"The growth of public health expenditures in OECD countries: do government ideology and electoral motives matter?,"
24083, University Library of Munich, Germany.
- Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
- Chen, Xin & Moul, Charles C., 2014. "Disease or utopia? Testing Baumol in education," Economics Letters, Elsevier, vol. 122(2), pages 220-223.
- Bates, Laurie & Santerre, Rexford, 2013. "Is the U.S. Private Education Sector Infected by Baumol’s Cost Disease? Evidence from the 50 States," MPRA Paper 52300, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.