Convergence of Health Expenditure in OECD Countries: Evidence from a Nonlinear Asymmetric Heterogeneous Panel Unit Root Test
DOI:
https://doi.org/10.6000/1929-7092.2015.04.07Keywords:
Health care expenditures, Convergence, Nonlinear asymmetric panel unit root tests, OECD Countries.Abstract
This paper examines the convergence in health expenditure across 22 OECD countries between 1980 and 2012 by implementing panel unit root tests. Contribution of application of the nonlinear asymmetric heterogeneous panel unit root test is twofold. Firstly, it relaxes the assumption of cross-sectional dependency in panel data. Secondly, it incorporates the asymmetric nonlinear mean reversion in a panel setting. Results show that while the conventional panel unit root test cannot reject the null hypothesis of a unit root in relative per capita health expenditures for the whole set of countries, both the symmetric and the asymmetric nonlinear panel unit root tests indicate the stationarity of the panel. Specifically, almost 23 percent of the countries are found to be converging by employing the nonlinear asymmetric panel unit root test. In addition, introducing asymmetric structure helps to uncover additional converging countries which cannot be detected using linear and nonlinear symmetric panel unit root tests.References
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http://dx.doi.org/10.1002/hec.1374
Aslan, Alper. 2008. “Convergence of per Capita Health Care Expenditures in OECD Countries.” MPRA Paper No: 10592.
Boyle, G. E. and T. G. McCarthy. 1999. “Simple Measures of Convergence in per Capita GDP: A Note on Some Further International Evidence.” Applied Economics Letters 6(6):343-347.
http://dx.doi.org/10.1080/135048599353041
Chang, Yoosoon. 2004. “Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency.” Journal of Econometrics 120(2):263–293.
http://dx.doi.org/10.1016/S0304-4076(03)00214-8
Chong, Terence T., Melvin J. Hinich, Venus K. Liew, and Kian-Ping Lim. 2008. “Time Series Test of Nonlinear Convergence and Transitional Dynamics.” Economics Letters 100(3):337-339.
http://dx.doi.org/10.1016/j.econlet.2008.02.025
Chortareas, Georgios and George Kapetanios. 2009. “Getting PPPR Right: Identifying Mean-reverting Real Exchange Rates in Panels.” Journal of Banking and Finance 33(2):390–404.
http://dx.doi.org/10.1016/j.jbankfin.2008.08.010
Datta, Anusua. 2003. “Time Series Test of Convergence and Transitional Dynamics.” Economics Letters 81(2):233–240.
http://dx.doi.org/doi:10.1016/S0165-1765(03)00186-1
Docteur, Elizabeth and Howard Oxley. 2003. “Health Care Systems: Lessons from the Reform Experience.” OECD Health Working Papers. OECD, Paris.
http://dx.doi.org/10.1787/884504747522
Emirmahmutoglu, Furkan and Tolga Omay. 2014. “Reexamining the PPP Hypothesis: A Nonlinear Asymmetric Heterogeneous Panel Unit Root Test.” Economic Modelling 40:184-190.
http://dx.doi.org/10.1016/j.econmod.2014.03.028
Fallahi, Firouz. 2011. “Convergence of Total Health Expenditure as a Share of GDP: Evidence from Selected OECD Countries.” MPRA Paper No: 51324.
Grossman, Michael. 1972. “On the Concept of Health Capital and the Demand for Health.” Journal of Political Economy 80(2):223-255.
http://dx.doi.org/10.1086/259880
Hitiris, Theo and John Nixon. 2001. “Convergence in Health Care Expenditure in the EU Countries.” Applied Economics Letters 8(4):223–228.
http://dx.doi.org/10.1080/135048501750103890
Huber, Manfred and Eva Orosz. 2003. “Health Expenditure Trends in OECD Countries, 1990-2001.” Health Care Financing Review 25(1):1-22.
Im, Kyung S., M. Hashem Pesaran, and Yongcheol Shin. 2003. “Testing for Unit Roots in Heterogeneous Panels.” Journal of Econometrics 115(1):53–74.
http://dx.doi.org/10.1016/S0304-4076(03)00092-7
Kapetanios, George, Yongcheol Shin, and Andy Snell. 2003. “Testing for a Unit Root in the Nonlinear STAR Framework.” Journal of Econometrics 112(2):359–379.
http://dx.doi.org/10.1016/S0304-4076(02)00202-6
Kerem, Kaie, Tiia Püss, Mare Viies, and Reet Maldre. 2008. “Health and Convergence of Health Care Expenditure in EU.” International Business & Economics Research Journal 7(3):29–44.
King, Alan and Carlyn Ramlogan-Dodson. 2011. “Nonlinear Time-Series Convergence: The Role of Structural Breaks.” Economic Letters 110(3):238-240.
http://dx.doi.org/10.1016/j.econlet.2010.12.001
Kwiatkowski, Denis, Peter C. B. Phillips, Peter Schmidt, and Yongcheol Shin. 1992. “Testing the Null Hypothesis of Stationary against the Alternative of a Unit Root.” Journal of Econometrics 54(1-3):159-178.
http://dx.doi.org/10.1016/0304-4076(92)90104-Y
Lau, Chi K. M., Ka W. T. Fung, and Lee Pugalis. 2014. “Is Health Care Expenditures Across Europe Converging?” Eurasian Business Review 4(2):137-156.
http://dx.doi.org/10.1007/s40821-014-0014-9
Lee, Junsoo and Mark C. Strazicich. 2003. “Minimum LM Unit Root Tests with Two Structural Breaks.” Review of Economics and Statistics 85(4):1082-1089.
http://dx.doi.org/10.1162/003465303772815961
Lima, Marcos A. M. and Marcelo Resende. 2007. “Convergence of per Capita GDP in Brazil: An Empirical Note.” Applied Economic Letters 14(5):333-335.
http://dx.doi.org/10.1080/13504850500461381
Montanari, Ingalill and Kenneth Nelson. 2013. “Social Services Decline and System Convergence: How Does Health Care Fare?” Journal of European Social Policy 23(1):102–116.
http://dx.doi.org/10.1177/0958928712456574
Narayan, Paresh K. 2007. “Do Health Expenditures Catch-up? Evidence from OECD Countries.” Health Economics 16(10):993-1008.
http://dx.doi.org/10.1002/hec.1196
Narayan, Paresh K. 2009. “Are Health Expenditures and GDP Characterized by Asymmetric behavior? Evidence from 11 OECD Countries.” Applied Economics 41(4):531-536.
http://dx.doi.org/10.1080/00036840701765304
Newhouse, Joseph P. 1992. “Medical Care Costs: How Much Welfare Loss?” The Journal of Economic Perspectives 6(3):3-21.
http://dx.doi.org/10.1257/jep.6.3.3
Nixon, John. 2000. “Convergence of Health Care Spending and Health outcomes in the European Union, 1960–1995.” Discussion paper No: 183. Centre for Health Economics, University of York.
Nyong, Michael O. and Olufunsho A. Omobitan. 2013. “Nonlinear Income Convergence and Structural Breaks: Further Empirical Evidence.” International Journal of Economics and Finance 5(4):81-88.
http://dx.doi.org/10.5539/ijef.v5n4p81
Organization for Economic Cooperation and Development (OECD). 2010. “Health Care Systems: Getting More Value for Money.” OECD Economics Department Policy Notes No. 2. OECD, Paris.
Organization for Economic Cooperation and Development (OECD). 2013. “Health at a Glance 2013: OECD Indicators.” OECD, Paris.
http://dx.doi.org/10.1787/health_glance-2013-en
Okunade, Albert A. and Vasudeva N. R. Murthy. 2002. “Technology as a ‘Major Driver’ of Health Care Costs: A Cointegration Analysis of the Newhouse Conjecture.” Journal of Health Economics 21(1):147-159.
http://dx.doi.org/10.1016/S0167-6296(01)00122-9
Panopoulou, Ekaterini and Theologos Pantelidis. 2011. “Convergence in per Capita Health Expenditures and Health Outcomes in OECD Countries.” Applied Economics 44(30):3909–3920.
http://dx.doi.org/10.1080/00036846.2011.583222
Phillips, Peter C. B. and Donggyu Sul. 2007. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75(6):1771–1855.
http://dx.doi.org/10.1111/j.1468-0262.2007.00811.x
Schmitt, Carina and Peter Starke. 2011. “Explaining Convergence of OECD Welfare States: A Conditional Approach.” Journal of European Social Policy 21(2):120–135.
http://dx.doi.org/10.1177/0958928710395049
Sollis, Robert. 2009. “A simple Unit Root test against asymmetric STAR nonlinearity with and application to real exchange rates in Nordic countries.” Economic Modelling 26(1):118-125.
http://dx.doi.org/10.1016/j.econmod.2008.06.002
Spencer, E. and K. Walshe. 2009. “National Quality Improvement Policies and Strategies in European Healthcare Systems.” Qual Saf Health Care 18(Suppl 1):i22–i27.
http://dx.doi.org/10.1136/qshc.2008.029355
Taylor, Mark P. and Lucio Sarno. 1998. “The Behavior of Real Exchange Rates during the Post-Bretton Woods Period.” Journal of International Economics 46(2):281–312.
http://dx.doi.org/10.1016/S0022-1996(97)00054-8
Ucar, Nuri and Tolga Omay. 2009. “Testing for Unit Roots in Nonlinear Heterogeneous Panels.” Economics Letters 104(1):5–8.
http://dx.doi.org/10.1016/j.econlet.2009.03.018
Vogelsang, Timothy J. 1998. “Trend Function Hypothesis Testing in the Presence of Serial Correlation.” Econometrica 66(1):123-148.
http://dx.doi.org/10.2307/2998543
Wang, Zijun. 2009. “The Convergence of Health Care Expenditures in the US States.” Health Economics 18(1):55–70.
http://dx.doi.org/10.1002/hec.1343
http://dx.doi.org/10.1002/hec.1374
Aslan, Alper. 2008. “Convergence of per Capita Health Care Expenditures in OECD Countries.” MPRA Paper No: 10592.
Boyle, G. E. and T. G. McCarthy. 1999. “Simple Measures of Convergence in per Capita GDP: A Note on Some Further International Evidence.” Applied Economics Letters 6(6):343-347.
http://dx.doi.org/10.1080/135048599353041
Chang, Yoosoon. 2004. “Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency.” Journal of Econometrics 120(2):263–293.
http://dx.doi.org/10.1016/S0304-4076(03)00214-8
Chong, Terence T., Melvin J. Hinich, Venus K. Liew, and Kian-Ping Lim. 2008. “Time Series Test of Nonlinear Convergence and Transitional Dynamics.” Economics Letters 100(3):337-339.
http://dx.doi.org/10.1016/j.econlet.2008.02.025
Chortareas, Georgios and George Kapetanios. 2009. “Getting PPPR Right: Identifying Mean-reverting Real Exchange Rates in Panels.” Journal of Banking and Finance 33(2):390–404.
http://dx.doi.org/10.1016/j.jbankfin.2008.08.010
Datta, Anusua. 2003. “Time Series Test of Convergence and Transitional Dynamics.” Economics Letters 81(2):233–240.
http://dx.doi.org/doi:10.1016/S0165-1765(03)00186-1
Docteur, Elizabeth and Howard Oxley. 2003. “Health Care Systems: Lessons from the Reform Experience.” OECD Health Working Papers. OECD, Paris.
http://dx.doi.org/10.1787/884504747522
Emirmahmutoglu, Furkan and Tolga Omay. 2014. “Reexamining the PPP Hypothesis: A Nonlinear Asymmetric Heterogeneous Panel Unit Root Test.” Economic Modelling 40:184-190.
http://dx.doi.org/10.1016/j.econmod.2014.03.028
Fallahi, Firouz. 2011. “Convergence of Total Health Expenditure as a Share of GDP: Evidence from Selected OECD Countries.” MPRA Paper No: 51324.
Grossman, Michael. 1972. “On the Concept of Health Capital and the Demand for Health.” Journal of Political Economy 80(2):223-255.
http://dx.doi.org/10.1086/259880
Hitiris, Theo and John Nixon. 2001. “Convergence in Health Care Expenditure in the EU Countries.” Applied Economics Letters 8(4):223–228.
http://dx.doi.org/10.1080/135048501750103890
Huber, Manfred and Eva Orosz. 2003. “Health Expenditure Trends in OECD Countries, 1990-2001.” Health Care Financing Review 25(1):1-22.
Im, Kyung S., M. Hashem Pesaran, and Yongcheol Shin. 2003. “Testing for Unit Roots in Heterogeneous Panels.” Journal of Econometrics 115(1):53–74.
http://dx.doi.org/10.1016/S0304-4076(03)00092-7
Kapetanios, George, Yongcheol Shin, and Andy Snell. 2003. “Testing for a Unit Root in the Nonlinear STAR Framework.” Journal of Econometrics 112(2):359–379.
http://dx.doi.org/10.1016/S0304-4076(02)00202-6
Kerem, Kaie, Tiia Püss, Mare Viies, and Reet Maldre. 2008. “Health and Convergence of Health Care Expenditure in EU.” International Business & Economics Research Journal 7(3):29–44.
King, Alan and Carlyn Ramlogan-Dodson. 2011. “Nonlinear Time-Series Convergence: The Role of Structural Breaks.” Economic Letters 110(3):238-240.
http://dx.doi.org/10.1016/j.econlet.2010.12.001
Kwiatkowski, Denis, Peter C. B. Phillips, Peter Schmidt, and Yongcheol Shin. 1992. “Testing the Null Hypothesis of Stationary against the Alternative of a Unit Root.” Journal of Econometrics 54(1-3):159-178.
http://dx.doi.org/10.1016/0304-4076(92)90104-Y
Lau, Chi K. M., Ka W. T. Fung, and Lee Pugalis. 2014. “Is Health Care Expenditures Across Europe Converging?” Eurasian Business Review 4(2):137-156.
http://dx.doi.org/10.1007/s40821-014-0014-9
Lee, Junsoo and Mark C. Strazicich. 2003. “Minimum LM Unit Root Tests with Two Structural Breaks.” Review of Economics and Statistics 85(4):1082-1089.
http://dx.doi.org/10.1162/003465303772815961
Lima, Marcos A. M. and Marcelo Resende. 2007. “Convergence of per Capita GDP in Brazil: An Empirical Note.” Applied Economic Letters 14(5):333-335.
http://dx.doi.org/10.1080/13504850500461381
Montanari, Ingalill and Kenneth Nelson. 2013. “Social Services Decline and System Convergence: How Does Health Care Fare?” Journal of European Social Policy 23(1):102–116.
http://dx.doi.org/10.1177/0958928712456574
Narayan, Paresh K. 2007. “Do Health Expenditures Catch-up? Evidence from OECD Countries.” Health Economics 16(10):993-1008.
http://dx.doi.org/10.1002/hec.1196
Narayan, Paresh K. 2009. “Are Health Expenditures and GDP Characterized by Asymmetric behavior? Evidence from 11 OECD Countries.” Applied Economics 41(4):531-536.
http://dx.doi.org/10.1080/00036840701765304
Newhouse, Joseph P. 1992. “Medical Care Costs: How Much Welfare Loss?” The Journal of Economic Perspectives 6(3):3-21.
http://dx.doi.org/10.1257/jep.6.3.3
Nixon, John. 2000. “Convergence of Health Care Spending and Health outcomes in the European Union, 1960–1995.” Discussion paper No: 183. Centre for Health Economics, University of York.
Nyong, Michael O. and Olufunsho A. Omobitan. 2013. “Nonlinear Income Convergence and Structural Breaks: Further Empirical Evidence.” International Journal of Economics and Finance 5(4):81-88.
http://dx.doi.org/10.5539/ijef.v5n4p81
Organization for Economic Cooperation and Development (OECD). 2010. “Health Care Systems: Getting More Value for Money.” OECD Economics Department Policy Notes No. 2. OECD, Paris.
Organization for Economic Cooperation and Development (OECD). 2013. “Health at a Glance 2013: OECD Indicators.” OECD, Paris.
http://dx.doi.org/10.1787/health_glance-2013-en
Okunade, Albert A. and Vasudeva N. R. Murthy. 2002. “Technology as a ‘Major Driver’ of Health Care Costs: A Cointegration Analysis of the Newhouse Conjecture.” Journal of Health Economics 21(1):147-159.
http://dx.doi.org/10.1016/S0167-6296(01)00122-9
Panopoulou, Ekaterini and Theologos Pantelidis. 2011. “Convergence in per Capita Health Expenditures and Health Outcomes in OECD Countries.” Applied Economics 44(30):3909–3920.
http://dx.doi.org/10.1080/00036846.2011.583222
Phillips, Peter C. B. and Donggyu Sul. 2007. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75(6):1771–1855.
http://dx.doi.org/10.1111/j.1468-0262.2007.00811.x
Schmitt, Carina and Peter Starke. 2011. “Explaining Convergence of OECD Welfare States: A Conditional Approach.” Journal of European Social Policy 21(2):120–135.
http://dx.doi.org/10.1177/0958928710395049
Sollis, Robert. 2009. “A simple Unit Root test against asymmetric STAR nonlinearity with and application to real exchange rates in Nordic countries.” Economic Modelling 26(1):118-125.
http://dx.doi.org/10.1016/j.econmod.2008.06.002
Spencer, E. and K. Walshe. 2009. “National Quality Improvement Policies and Strategies in European Healthcare Systems.” Qual Saf Health Care 18(Suppl 1):i22–i27.
http://dx.doi.org/10.1136/qshc.2008.029355
Taylor, Mark P. and Lucio Sarno. 1998. “The Behavior of Real Exchange Rates during the Post-Bretton Woods Period.” Journal of International Economics 46(2):281–312.
http://dx.doi.org/10.1016/S0022-1996(97)00054-8
Ucar, Nuri and Tolga Omay. 2009. “Testing for Unit Roots in Nonlinear Heterogeneous Panels.” Economics Letters 104(1):5–8.
http://dx.doi.org/10.1016/j.econlet.2009.03.018
Vogelsang, Timothy J. 1998. “Trend Function Hypothesis Testing in the Presence of Serial Correlation.” Econometrica 66(1):123-148.
http://dx.doi.org/10.2307/2998543
Wang, Zijun. 2009. “The Convergence of Health Care Expenditures in the US States.” Health Economics 18(1):55–70.
http://dx.doi.org/10.1002/hec.1343
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Published
2015-04-16
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Pekkurnaz, D. (2015). Convergence of Health Expenditure in OECD Countries: Evidence from a Nonlinear Asymmetric Heterogeneous Panel Unit Root Test. Journal of Reviews on Global Economics, 4, 76–86. https://doi.org/10.6000/1929-7092.2015.04.07
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