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A nonlinear approach to testing the unit root null hypothesis: an application to international health expenditures

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In this article, we examine the unit root null hypothesis for per capita total Health Expenditures (HEs), per capita private HEs and per capita public HEs for 29 Organization for Economic Co-operation and Development (OECD) countries. The novelty of our work is that we use a new nonlinear unit root test that allows for one structural break in the data series. We find that for around 45% of the countries, we are able to reject the unit root hypothesis for each of the three HE series. Moreover, using Monte Carlo simulations, we show that our proposed unit root model has better size and power properties than the widely used Augmented Dickey–Fuller (ADF) and Lagrange Multiplier (LM) type tests.

Document Type: Research Article


Affiliations: 1: Faculty of Business and Law,School of Accounting, Economics and Finance, Deakin University, 221 Burwood HighwayBurwood,Victoria 3125, Australia 2: Department of Economics,University of Duisburg-Essen, 45117 Essen, Germany

Publication date: January 1, 2012

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