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Stationarity and cointegration of health care expenditure and GDP: evidence from tests with smooth structural shifts

Author

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  • Hyejin Lee

    (Tuskegee University)

  • Dong-Yop Oh

    (Auburn University at Montgomery)

  • Ming Meng

    (Fifth Third Bank)

Abstract

This paper studies stationarity and cointegration of healthcare expenditure (HE) and GDP for a sample of OECD countries. In particular, we employ newly developed unit root and cointegration tests which approximate an unknown number of smooth structural shifts in the low-frequency components of a Fourier expansion. The new unit root test indicates that HE and GDP are non-stationary. In the presence of a number of smooth shifts in the cointegration regression, our empirical results support the existence of stochastic comovement between HE and GDP in 14 out of 20 OECD countries. In addition, we examine the income elasticity of HE for the countries that we found cointegration relationship between HE and GDP. We found 13 out of 14 countries with income elasticity of HE higher than 1, which implies that health care is a luxury good.

Suggested Citation

  • Hyejin Lee & Dong-Yop Oh & Ming Meng, 2019. "Stationarity and cointegration of health care expenditure and GDP: evidence from tests with smooth structural shifts," Empirical Economics, Springer, vol. 57(2), pages 631-652, August.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:2:d:10.1007_s00181-018-1561-1
    DOI: 10.1007/s00181-018-1561-1
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    More about this item

    Keywords

    Unit root; Cointegration; Fourier approximation; Healthcare expenditure; OECD;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I10 - Health, Education, and Welfare - - Health - - - General

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