On the Causality between GDP and Health Care Expenditure in Augmented Solow Growth Model
AbstractThis paper examines conditional convergence of OECD countries in gross domestic product (GDP) and health care expenditure (HCE) per capita. It presents estimation of the augmented Solow growth model suggested by Mankiw, Romer and Weil (1992) to explain variation in output and expenditure per capita across countries. The variation is due to different steady state growth paths resulting from differences in the countries savings rate, education, and population growth. This paper is an extension of the MRW model by incorporating health capital proxied by HCE to the augmented Solow model. The analysis is further related to the studies of health care expenditure where GDP per capita appear to be the main factor determining the level of expenditure on health care. The issue of causality relationship between GDP and HCE is investigated. The empirical analysis is based OECD countries’ data for the period of 1970-1992. The results indicate that OECD countries converge at 3.7% per year to their steady state level of income per capita. The results show that HCE has positive effect on the economic growth and the speed of convergence. The speed of convergence is found to be sensitive to whether one imposes a constant or estimate the depreciation and technological growth components. With no restrictions imposed the convergence rate is 5.2%. Considering the rate of convergence in the HCE model the results show that OECD countries converge at 2.7% to their steady state of HCE per capita. In the HCE model a regression of the speed of convergence on variables determining the rate of convergence show close link to the variables characterizing the health care system of sample countries.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 423.
Length: 20 pages
Date of creation: 15 Jan 2001
Date of revision:
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Solow growth model; health care expenditure; GDP; convergence; OECD;
Find related papers by JEL classification:
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
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