Health care expenditures and GDP in Latin American and OECD countries: a comparison using a panel cointegration approach
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Health care expenditures and GDP in Latin American and OECD countries: a comparison using a panel cointegration approach Alejandro F. Rodríguez1 · M. Nieves Valdés2 Received: 9 February 2017 / Accepted: 10 September 2018 © Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract This paper provides empirical evidence of the existence of a long-run causal relationship between GDP and health care expenditures, for a group of Latin American and the Caribbean countries and for OECD countries for the period 1995–2014. We estimated the income elasticity of health expenditure to be equal to unity for both groups of countries, that is, health care in Latin American and OECD countries is a necessity rather than a luxury. We did not find evidence of a causal effect in the opposite direction, i.e. from changes in health expenditure to GDP. We present conclusive evidence of the cross-country dependence of the analyzed series, and consequently we used panel unit root tests, panel cointegration tests, and long-run estimates that are robust to such dependence. Specifically, we use the CIPS panel unit root test and the panel Common Correlated Effects estimator. We also show that the results obtained by mistakenly using methods that assume cross-section independence are unstable. Keywords Income elasticity of health care expenditures · Panel cointegration · Cross-section dependence · Latin American and the Caribbean and OECD countries JEL Classification I15 · I18 · H51
Introduction Total health care expenditures (HE) as a percentage of Gross Domestic Product (GDP) has increased in almost all regions of the world. Measured as a percentage of GDP and averaged
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M. Nieves Valdés [email protected] Alejandro F. Rodríguez [email protected]
1
Departamento de Ingeniería Industrial, Universidad de Talca, Camino a los Niches KM 1, Curicó, Chile
2
Escuela de Gobierno, Universidad Adolfo Ibáñez, Diagonal Las Torres 2640, Peñalolén, Santiago de Chile, Chile
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A. F. Rodríguez, M. Nieves Valdés
over 192 countries, HE has increased from 5.8% in 1995 to 6.8% in 2014.1 This increase can be seen among developed countries, such as the members of the Organization for Economic Co-operation and Development (OECD), as well as Latin American (LA) countries, most of which are categorized as developing economies.2 However, there are clear differences in the amount of resources each country expends on health care, with higher percentages of GDP assigned to HE in richer countries. OECD countries had an average ratio of HE to GDP of 9.3% in 2014, while the figure in LA was 6.8%.3 Among OECD countries the current discussion is related to how to contain HE, while in LA countries increases in HE are seen as positive. International institutions like the Pan American Health Organization include among their goals and strategies increasing HE as this may guarantee the crucial goal of achieving universal health care coverage in developing countries. This objective is formulated under the premise of a positive and significant corr
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