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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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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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  1. Theo Hitiris, 1997. "Health care expenditure and integration in the countries of the European Union," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 1-6.
  2. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  3. Paresh Kumar Narayan & Seema Narayan, 2008. "The role of permanent and transitory shocks in explaining international health expenditures," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1171-1186.
  4. Pedro Pita Barros, 1998. "The black box of health care expenditure growth determinants," Health Economics, John Wiley & Sons, Ltd., vol. 7(6), pages 533-544.
  5. Narayan, Paresh Kumar, 2006. "Examining structural breaks and growth rates in international health expenditures," Journal of Health Economics, Elsevier, vol. 25(5), pages 877-890, September.
  6. Lee, Junsoo & Strazicich, Mark C, 2001. " Break Point Estimation and Spurious Rejections with Endogenous Unit Root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(5), pages 535-58, December.
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