The Use of Cointegration and Error Correction Modelling To Investigate the Influence of Diabetes and Associated Medical Services Expenditure on Economic Growth in Malaysia

This paper reports on a frontier study undertaken to examine the influence of mortality rates due to diabetes (DBT) and medical services expenditure (EXP) on economic growth (RGDPP) in Malaysia. The results of the Johansen test for cointegration allowed the acceptance of r = 2 as our estimate of the number of cointegrating equations among the three of variables. The negative sign of the residual in the estimated Error Correction Modelling (ECM) indicated the existence of a long-run equilibrium relationship among RGDPP, EXP and DBT, while the coefficient for error term implied that the system corrected its previous period disequilibrium due to positive or negative shocks in one period at an adjustment speed of 9.23 percent annually. These findings have substantive implications on the efforts to promote and achieve satisfactory health and wellness in Malaysia, and highlight a critical need for an effective long-term national strategy to resolve diabetes related economic issues. The results provide a useful foundation for a much needed national debate to review health-care spending in relation to choosing the best methods in reducing and alleviating diabetes and other chronic diseases such as cancer and cardiovascular disease. Additional priority areas that merit further study are highlighted to help in measuring and addressing the economic, human, and social costs of preventable chronic diseases and to identify opportunities to ameliorate these important aspects within the economy.