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Spurious correlation in estimation of the health production function: A note

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Abstract

In this paper, we address the issue of spurious correlation in the production of health in a systematic way. Spurious correlation entails the risk of linking health status to medical (and nonmedical) inputs when no links exist. This note first presents the bounds testing procedure as a method to detect and avoid spurious correlation. It then applies it to a recent contribution by Lichtenberg (2004), which relates longevity in the United States to pharmaceutical innovation and public health care expenditure. The results of the bounds testing procedure show longevity to be linearly related to these two factors. Therefore, the estimates reported by Lichtenberg (2004) cannot be said to be result of spurious correlation, to the contrary, they very likely reflect an effective relationship, at least for the United States.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 09-227.

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Length: 15 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:kof:wpskof:09-227

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Keywords: Health; Life expectancy; Innovation; Pharmaceuticals; Health care expenditure; Cointegration;

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  1. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  2. Zeynep Or, 2001. "Exploring the Effects of Health Care on Mortality Across OECD Countries," OECD Labour Market and Social Policy Occasional Papers 46, OECD Publishing.
  3. Pierre-Yves Crémieux & Pierre Ouellette & Caroline Pilon, 1999. "Health care spending as determinants of health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 8(7), pages 627-639.
  4. Blomqvist, A.G. & Carter, R.A.L., 1993. "Is Health Care Really a Luxury?," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 9311, University of Western Ontario, Department of Economics.
  5. Frank R. Lichtenberg, 1996. "The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality," NBER Working Papers 5418, National Bureau of Economic Research, Inc.
  6. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, Elsevier, vol. 2(2), pages 111-120, July.
  7. Pierre-Yves Crémieux & Marie-Claude Meilleur & Pierre Ouellette & Patrick Petit & Martin Zelder & Ken Potvin, 2005. "Public and private pharmaceutical spending as determinants of health outcomes in Canada," Health Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 107-116.
  8. Peter Zweifel & Lukas Steinmann & Patrick Eugster, 2005. "The Sisyphus Syndrome in Health Revisited," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 5(2), pages 127-145, June.
  9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198774501, October.
  10. Carrion-i-Silvestre, Josep Lluis, 2005. "Health care expenditure and GDP: Are they broken stationary?," Journal of Health Economics, Elsevier, Elsevier, vol. 24(5), pages 839-854, September.
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Cited by:
  1. Ilja Neustadt & Peter Zweifel, 2009. "Economic Well-Being, Social Mobility, and Preferences for Income Redistribution: Evidence from a Discrete Choice Experiment," SOI - Working Papers 0909, Socioeconomic Institute - University of Zurich, revised Jan 2010.
  2. Polk, Andreas & Schmutzler, Armin & Müller, Adrian, 2013. "Lobbying and the Power of Multinational Firms," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79875, Verein für Socialpolitik / German Economic Association.
  3. Badi Baltagi & Francesco Moscone & Elisa Tosetti, 2012. "Medical technology and the production of health care," Empirical Economics, Springer, Springer, vol. 42(2), pages 395-411, April.
  4. Michele Sennhauser, 2009. "Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments," SOI - Working Papers 1014, Socioeconomic Institute - University of Zurich.
  5. Maurus Rischatsch & Maria Trottmann, 2009. "Physician dispensing and the choice between generic and brand-name drugs – Do margins affect choice?," SOI - Working Papers 0911, Socioeconomic Institute - University of Zurich.
  6. Maurus Rischatsch, 2009. "Simulating WTP Values from Random-Coefficient Models," SOI - Working Papers 0912, Socioeconomic Institute - University of Zurich.

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