SSE/EFI Working Paper Series in Economics and Finance
No 423:
On the Causality between GDP and Health Care Expenditure in Augmented Solow Growth Model
Almas Heshmati ()
Abstract: This paper examines conditional convergence of OECD
countries in gross domestic product (GDP) and health care expenditure (HCE)
per capita. It presents estimation of the augmented Solow growth model
suggested by Mankiw, Romer and Weil (1992) to explain variation in output
and expenditure per capita across countries. The variation is due to
different steady state growth paths resulting from differences in the
countries savings rate, education, and population growth. This paper is an
extension of the MRW model by incorporating health capital proxied by HCE
to the augmented Solow model. The analysis is further related to the
studies of health care expenditure where GDP per capita appear to be the
main factor determining the level of expenditure on health care. The issue
of causality relationship between GDP and HCE is investigated. The
empirical analysis is based OECD countries’ data for the period of
1970-1992. The results indicate that OECD countries converge at 3.7% per
year to their steady state level of income per capita. The results show
that HCE has positive effect on the economic growth and the speed of
convergence. The speed of convergence is found to be sensitive to whether
one imposes a constant or estimate the depreciation and technological
growth components. With no restrictions imposed the convergence rate is
5.2%. Considering the rate of convergence in the HCE model the results show
that OECD countries converge at 2.7% to their steady state of HCE per
capita. In the HCE model a regression of the speed of convergence on
variables determining the rate of convergence show close link to the
variables characterizing the health care system of sample countries.
Keywords: Solow growth model; health care expenditure; GDP; convergence; OECD; (follow links to similar papers)
JEL-Codes: C20; E13; H51; O47; O57; (follow links to similar papers)
20 pages, January 15, 2001
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