Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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

Ulf-G. Gerdtham () and Mickael Löthgren ()
Additional contact information
Ulf-G. Gerdtham: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Mickael Löthgren: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

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

JEL-codes: C12; C22; C23; I10

13 pages, First version: April 15, 1998. Revised: January 29, 1999.

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