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The determinants of health care expenditure: Testing pooling restrictions in small samples

  • Herwartz, Helmut
  • Theilen, Bernd

Healthcare expenditure has increased substantially in all western industrialized countries in the last decades. The necessity to contain the increase in health care expenditure has motivated the Analysis of its determinants to explain differences across countries and health systems. However, recent studies have questioned the use of cross~section data arguing that health systems are too different to allow for such comparisons. In this paper we investigate whether this criticism is really justified. We analyze the variations of health care expenditure in OECD countries relative to income, population aging and technological change. Our analysis is based on pooled cross-section data and time series. Firstly, formulating an error correction model for individual countries we demonstrate that for almost all of the countries investigated the variables are cointegrated. Secondly, we use a bootstrap framework for inference and examine whether the influence of the explanatory variables is unique across countries. Applying recursive estimation procedures we find that there is evidence for a common influence in the period 1961 to 1979 while in the last two decades explanatory variables have different impacts on health care expenditure across countries. This indicates the divergence of health systems and the growing importance of country-specific effects in the explanation of differences in health care expenditure across countries.

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,78.

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Date of creation: 2000
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Handle: RePEc:zbw:sfb373:200078
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  1. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
  2. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  3. 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.
  4. Shin, Yongcheol, 1994. "A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration," Econometric Theory, Cambridge University Press, vol. 10(01), pages 91-115, March.
  5. Gerdtham, Ulf-G. & Löthgren, Mickael, 1998. "On stationarity and cointegration of international health expenditure and GDP," SSE/EFI Working Paper Series in Economics and Finance 232, Stockholm School of Economics, revised 29 Jan 1999.
  6. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
  7. 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.
  8. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  9. 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.
  10. 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.
  11. Parkin, David & McGuire, Alistair & Yule, Brian, 1987. "Aggregate health care expenditures and national income : Is health care a luxury good?," Journal of Health Economics, Elsevier, vol. 6(2), pages 109-127, June.
  12. repec:cup:etheor:v:10:y:1994:i:1:p:95-115 is not listed on IDEAS
  13. Hitiris, Theo & Posnett, John, 1992. "The determinants and effects of health expenditure in developed countries," Journal of Health Economics, Elsevier, vol. 11(2), pages 173-181, August.
  14. Hansen, Paul & King, Alan, 1998. "Health care expenditure and GDP: panel data unit root test results--comment," Journal of Health Economics, Elsevier, vol. 17(3), pages 377-381, June.
  15. Gerdtham, Ulf-G. & Jonsson, Bengt, 1991. "Conversion factor instability in international comparisons of health care expenditure," Journal of Health Economics, Elsevier, vol. 10(2), pages 227-234, July.
  16. 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.
  17. Herwartz, Helmut & Neumann, Michael H., 2000. "Bootstrap inference in single equation error correction models," SFB 373 Discussion Papers 2000,87, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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