Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 232:
On stationarity and cointegration of international health expenditure and GDP

Ulf-G. Gerdtham () and Mickael Löthgren ()

Abstract: The recent findings by McCoskey and Selden (1997, Journal of Health Economics, forthcoming) that health expenditure and GDP are stationary are driven by the omission of time trends in their ADF regressions. Since both health expenditure and GDP are trending, this omission raise serious doubts on the validity of their results. We apply recently developed heterogeneous panel tests which indicate that both health expenditure and GDP are nonstationary and cointegrated around linear trends. Additionally, we find weak evidence for the existence of a common cointegrating vector across the OECD countries.

Keywords: Cointegration; Heterogeneous dynamic panels; Panel unit root test; (follow links to similar papers)

JEL-Codes: C12; C22; C23; I10; (follow links to similar papers)

13 pages, April 15, 1998, Revised January 29, 1999

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This paper is published as:
Gerdtham, Ulf-G. and Mickael Löthgren, (2000), 'On stationarity and cointegration of international health expenditure and GDP', Journal of Health Economics, Vol. 19, pages 461-475

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