Haider, Adnan and Butt, M. Sabihuddin (2006): The Direction of Causality between Health Spending and GDP: The Case of Pakistan. Published in: Pakistan Economic and Social Review , Vol. 45, No. 1 (5. March 2007): pp. 125140.

PDF
MPRA_paper_23379.pdf Download (248kB)  Preview 
Abstract
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 pretesting, 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.
Item Type:  MPRA Paper 

Original Title:  The Direction of Causality between Health Spending and GDP: The Case of Pakistan 
Language:  English 
Keywords:  Health Spending; GDP; Causality 
Subjects:  H  Public Economics > H5  National Government Expenditures and Related Policies > H51  Government Expenditures and Health C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C12  Hypothesis Testing: General C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes 
Item ID:  23379 
Depositing User:  Adnan Haider Adnan 
Date Deposited:  22. Jun 2010 16:01 
Last Modified:  22. May 2015 05:11 
References:  Banerjee, A. (1999), Panel data unit roots and Cointegration: An Overview. Oxford Bulletin of Economics and Statistics, Special Issue, pp. 607629 Banerjee, A., J. Dolado, J. W. Galbraith and D. F. Hendry (1993), Cointegration, Error Correction and the Econometric Analysis of NonStationary Data. Oxford: Oxford University Press. Bewley, R. A. (1979), The direct estimation of the equilibrium response in a linear model. Economics Letters, Volume 3, pp. 357361. Blomqvist, A. G. and R. A. L. Carter (1997), Is health care really a luxury? Journal of Health Economics, Volume 16, pp. 207229. Butt, M. S. and I. A. Toor (2005), Determinant of health care expenditures in Pakistan. Pakistan Economic and Social Review, Volume XLIII, No. 1. Dickey, D. A. and W. A. Fuller (1979), Distribution of the estimators for autoregressive timeseries with a unit root. Journal of the Statistical Association, Volume 74, pp. 427431. Engle, R. F. and C. W. J. Granger (1987), Cointegration and error correction: Representation, estimation and testing. Econometrica, Volume 15, pp. 127137. Gerdtham, U., J. Søgaard, F. Andersson and B. Jönsson (1992), An econometric analysis of health care spending: A crosssection study of the OECD countries. Journal of Health Economics, Volume 11, pp. 6384. Greene, W. H. (1993), Econometric Analysis. New York: Macmillan. Hansen, B. E. (1992), Tests for parameter stability in regressions with I(1) processes. Journal of Business and Economic Statistics, Volume 10, pp. 321335. Hansen, P. and A. King (1996), The determinants of health care spending: A cointegration approach. Journal of Health Economics, Volume 15, pp. 127137. Hansen, P. and A. King (1998), Health care spending and GDP: Panel data unit root results – Comment. Journal of Health Economics, Volume 17, pp. 377381. Im, K. S., M. H. Pesaran and Y. Shin (1997), Testing for unit roots in heterogenous panels. Department of Applied Economics, Cambridge University, mimeo. Johansen, S. (1991), Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, Volume 59, pp. 15511580. McCoskey, S. K. and T. M. Selden (1998), Health care spendings and GDP: Panel data unit root results. Journal of Health Economics, Volume 17, pp. 369376. Pesaran, M. H. and B. Pesaran (1997), Microfit 4.0 Interactive Econometric Analysis. Oxford: Oxford University Press. Pesaran, M. H. and R. Smith (1995), Estimating longrun relationships from dynamic heterogenous panels. Journal of Econometrics, Volume 68, pp. 79113. Pesaran, M. H. and Y. Shin (1999), An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom, A. Holly and P. Diamond (eds.), Centennial volume of Ragnar Frisch. Cambridge: Cambridge University Press. Pesaran, M. H., Y. Shin and R. Smith (1999), Bounds testing approaches to the analysis of long run relationships. Cambridge University Discussion Paper. Phillips and B. E. Hansen (1990), Statistical inference in instrumental variables regressions with I(1) processes. Review of Economic Studies, Volume 57, pp. 99125. Roberts, J. (1999), Sensitivity of elasticity estimates for OECD health care spending: Analysis of a dynamic heterogeneous data field. Health Economics, Volume 8, pp. 459472. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/23379 