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What Determines the Health Care Expenditure of High Income Countries? A Dynamic Estimation


  • Yan Feng
  • Toby Watt
  • Anita Charlesworth
  • Grace Marsden
  • Adam Roberts
  • Jon Sussex


Constraining the rise in costs continues to be a major focus of health care policy in high income countries. It is important for governments to understand what is driving the rise in health care expenditure and what the impact will be over the coming years. This paper aims to provide an alternative econometric model to ascertain the determinants of health expenditure. Data from the OECD and IMS data bases for 18 OECD countries between 1988 and 2012 is collected. The analysis is at the year and country level. This study applies three methods: (1) panel data models with country fixed effects; (2) a first difference model; (3) a Vector Error Correction Model to account for the long run and short run effects as well as the endogeneity of the explanatory variables. The empirical results suggest that the use of different econometric specifications has a significant impact on both establishing the determinants of health expenditure and their magnitudes. Based on results from the Vector Error Correction Model, the GDP is considered as the only driver for country level health care expenditure growth. A 1% increase in the GDP is associated with a 1.1% increase in the health care expenditure.

Suggested Citation

  • Yan Feng & Toby Watt & Anita Charlesworth & Grace Marsden & Adam Roberts & Jon Sussex, 2017. "What Determines the Health Care Expenditure of High Income Countries? A Dynamic Estimation," Applied Economics and Finance, Redfame publishing, vol. 4(6), pages 1-16, November.
  • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:6:p:1-16

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    References listed on IDEAS

    1. Christine de la Maisonneuve & Rodrigo Moreno-Serra & Fabrice Murtin & Joaquim Oliveira Martins, 2016. "The drivers of public health spending: Integrating policies and institutions," OECD Economics Department Working Papers 1283, OECD Publishing.
    2. Dandan Liu & Rui Li & Zijun Wang, 2011. "Testing for structural breaks in panel varying coefficient models: with an application to OECD health expenditure," Empirical Economics, Springer, vol. 40(1), pages 95-118, February.
    3. Baltagi, Badi H. & Moscone, Francesco, 2010. "Health care expenditure and income in the OECD reconsidered: Evidence from panel data," Economic Modelling, Elsevier, vol. 27(4), pages 804-811, July.
    4. Hansen, Paul & King, Alan, 1996. "The determinants of health care expenditure: A cointegration approach," Journal of Health Economics, Elsevier, vol. 15(1), pages 127-137, February.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    6. Anindya Sen, 2005. "Is Health Care a Luxury? New Evidence from OECD Data," International Journal of Health Economics and Management, Springer, vol. 5(2), pages 147-164, June.
    7. Blomqvist, A. G. & Carter, R. A. L., 1997. "Is health care really a luxury?," Journal of Health Economics, Elsevier, vol. 16(2), pages 207-229, April.
    8. Christine de la Maisonneuve & Joaquim Oliveira Martins, 2013. "A Projection Method for Public Health and Long-Term Care Expenditures," OECD Economics Department Working Papers 1048, OECD Publishing.
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    More about this item


    health expenditure; OECD countries; time-series; vector error correction model;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General


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