The Direction of Causality between Health Spending and GDP: The Case of Pakistan
Relevant literature suggests that the most important determinant of health care spending is real GDP. Moreover, there is considerable evidence that health care spending rises at a faster rate than real GDP. This paper uses recently developed tests for the existence of a long run relationship to analyze the links between health care spending and GDP. We are, particularly, interested in estimating the elasticity parameter. The aim of the paper is to provide a new method of analysis to those used in recent papers on this subject. Typically in applied analysis, testing for the existence of cointegration and causality can only be carried out once the time series properties of the data have been established. For example, tests for cointegration require the variables to integrated of the same order, typically I(1), prior to estimation. By eliminating the need for unit root pre-testing, the tests applied here considerably simplify the inference procedure. They also reduce the potential for distortions in the inference due to the unknown properties of the testing sequence. Our findings include robust evidence that, for Pakistan, the income elasticity for health care spending is greater than one and that the elasticity value is stable over the estimation period.
|Date of creation:||15 Aug 2006|
|Date of revision:||05 Dec 2006|
|Publication status:||Published in Pakistan Economic and Social Review 1.45(2007): pp. 125-140|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McCoskey, Suzanne K. & Selden, Thomas M., 1998. "Health care expenditures and GDP: panel data unit root test results," Journal of Health Economics, Elsevier, vol. 17(3), pages 369-376, June.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Pesaran, M.H. & Smith, R., 1992.
"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
- Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
- Blomqvist, A.G. & Carter, R.A.L., 1993.
"Is Health Care Really a Luxury?,"
UWO Department of Economics Working Papers
9311, University of Western Ontario, Department of Economics.
- Gerdtham, Ulf-G. & Sogaard, Jes & Andersson, Fredrik & Jonsson, Bengt, 1992. "An econometric analysis of health care expenditure: A cross-section study of the OECD countries," Journal of Health Economics, Elsevier, vol. 11(1), pages 63-84, May.
- Mohammad Hashem Pesaran & Yongcheol Shin & Richard J Smith, 1999.
"Bounds Testing Approaches to the Analysis of Long Run Relationships,"
ESE Discussion Papers
46, Edinburgh School of Economics, University of Edinburgh.
- Pesaran, M. Hashem & Shin, Y. & Smith, R.J., 1999. "Bounds Testing Approaches to the Analysis of Long-run Relationships," Cambridge Working Papers in Economics 9907, Faculty of Economics, University of Cambridge.
- Hansen, Bruce E, 1992.
"Tests for Parameter Instability in Regressions with I(1) Processes,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 10(3), pages 321-335, July.
- Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
- Jennifer Roberts, 1999. "Sensitivity of elasticity estimates for OECD health care spending: analysis of a dynamic heterogeneous data field," Health Economics, John Wiley & Sons, Ltd., vol. 8(5), pages 459-472.
- Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
- Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:23379. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.