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New panel results on cointegration of international health expenditure and GDP

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This article tests for existence of cointegration between health expenditure and GDP using data from 25 OECD countries for the period 1960-1997. The empirical modelling is based on a heterogeneous bivariate vector error correction panel model that allows for trending data as well as intercepts and trends in the cointegrating relations. Univariate country-by-country and panel unit root tests generally fail to reject the null of a unit root in the health expenditure and GDP variables. Country-by-country results based on the Johansen multivariate likelihood-based inference indicate somewhat mixed results on country-specific cointegration with a rank of one found for 12 countries and a rank of zero for the remaining 13 countries. Application of a new panel test for cointegration rank with higher power than the individual tests indicates that health expenditure and GDP are cointegrated around linear trends.

Document Type: Research Article


Publication date: 2002-09-10

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