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A Nonlinear Approach to Testing the Unit Root Null Hypothesis: An Application to International Health Expenditures

  • Paresh Kumar Narayan

    ()

    (School of Accounting, Economics and Finance, Deakin University)

  • Stephan Popp

    (University of Duisburg-Essen)

In this paper, we examine the unit root null hypothesis for per capita total health expenditures, per capital private health expenditures, and per capital public health expenditures for 29 OECD countries. The novelty of our work is that we use a new nonlinear unit root test that allows for one structural break in the data series. We find that for around 45 per cent of the countries we are able to reject the unit root hypothesis for each of the three health expenditure series. Moreover, using Monte Carlo simulations, we show that our proposed unit root model has better size and power properties than the widely used ADF and LM type tests.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2009_10.pdf
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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2009_10.

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Length: 31 pages
Date of creation: 23 Jun 2009
Date of revision:
Handle: RePEc:dkn:econwp:eco_2009_10
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