Determinants of Healthcare Expenditure in Economic Cooperation Organization (ECO) Countries: Evidence from Panel Cointegration Tests

Document Type : Original Article

Authors

1 Department of Economics, School of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran

2 Department of Health Economics, School of Health Management and Information Sciences, Tehran University of Medical Sciences, Tehran, Iran

Abstract

Background
Over the last decade there has been an increase in healthcare expenditures while at the same time the inequity in distribution of resources has grown. These two issues have urged the researchers to review the determinants of healthcare expenditures. In this study, we surveyed the determinants of health expenditures in Economic Cooperation Organization (ECO) countries.
 
Methods
We used Panel data econometrics methods for the purpose of this research. For long term analysis, we used Pesaran cross sectional dependency test followed by panel unit root tests to show first whether the variables were stationary or not. Upon confirmation of no stationary variables, we used Westerlund panel cointegration test in order to show whether long term relationships exist between the variables. At the end, we estimated the model with Continuous-Updated Fully Modified (CUP-FM) estimator. For short term analysis also, we used Fixed Effects (FE) estimator to estimate the model.
 
Results
A long term relationship was found between the health expenditures per capita and GDP per capita, the proportion of population below 15 and above 65 years old, number of physicians, and urbanisation. Besides, all the variables had short term relationships with health expenditures, except for the proportion of population above 65 years old.
 
Conclusion
The coefficient of GDP was below 1 in the model. Therefore, health is counted as a necessary good in ECO countries and governments must pay due attention to the equal distribution of health services in all regions of the country.

Keywords

Main Subjects


1. Weil DN. Accounting for the Effect of Health on Economic Growth. Q J Econ 2006: 122: 41-5.
2. Bolin K, Lindgren B, Lindström M, Nystedt P. Investments in social capital implications of social interactions for the production of health. Soc Sci Med 2003; 56: 2379-90. doi: http://dx.doi.org/10.1016/S0277-9536(02)00242-3
3. Bolin K, Jacobson L, Lindgren B. Employer investments in employee health: Implications for the family as health producer. J  Health  Econ 2002; 21: 563-83. doi: http://dx.doi.org/10.1016/S0167-6296(02)00002-4
4. Jonathan G. Handbook of Health Economics. USA: Elsevier; 2000.
5. Aisa R, Pueyo F. Government health spending and growth in a model of endogenous longevity. Econ Lett 2006; 90: 249-53. doi: http://dx.doi.org/10.1016/j.econlet.2005.08.003
6. Baltagi BH, Moscone F. Health care expenditure and income in the OECD reconsidered: Evidence from panel data. Econ Model 2010; 27: 804-11. doi: http://dx.doi.org/10.1016/j.econmod.2009.12.001
7. Jochen H. What drives health care expenditure? Baumol’s model of ‘unbalanced growth’ revisited. J Health Econ 2008; 27: 603-23. doi: http://dx.doi.org/10.1016/j.jhealeco.2007.05.006
8. Hartman M, Martin A, Nuccio O, Catlin A. Health Spending Growth At A Historic Low In 2008. Health Affair 2010; 29: 147-55. doi: 10.1377/hlthaff.2009.0839
9. WHOSIS. Per capita health expenditures in an average exchange rates. World Health Organization, 2009.
10. WHOSIS. Health Expenditure Per Capita (PPP; International $) 2008. World Health Statistics, 2009.
11. Christiansen T, Mickael B, Jorgen L. Demographic changes and aggregate healthcare expenditure in europe. Uropean  Network  of  Economic Policy Research Institutes2006; 1: 200-25.
12. Paula V. Out-of-pocket health care expenditures due to excess of body weight in Portugal. Econ Hum Biol 2008; 6: 127-42.
13. Murthy VNR, Okunade AA. The core determinants of health expenditure in the African context: Some econometric evidence for policy. Health Policy 2009; 91: 57-62. doi: 10.1016/j.healthpol.2008.10.001
14. Newhouse J. Medical care expenditures; a cross national study. J Hum Resour 1977; 12: 10-26.
15. Breyer F, Felder S. Life expectancy and health care expenditures: A new calculation for Germany using the costs of dying. Health Policy 2006; 75: 178-86.
16. Olhansky S, Rudberg MA, Cassel CK, Brody JA. Trading off longer life for worsening health: the expansion of Morbidity Hypothesis. J Aging Health 1991; 3: 22. doi: 10.1177/089826439100300205
17. Fuchs VR. Though much is taken: reflections on aging, health and medical care. Quar Heal Soc 1984; 61: 23-31.
18. Lubitz J, GF Riley. Trends in medicare payments in the last year of life. New Engl J Med 1993; 328: 4. doi: 10.1056/NEJM199304153281506
19. Zweifel P, Felder S, Meier M. Ageing of population and health care expenditure: a red herring? Healh Econ 1999; 8: 11-22.
20. Stearns S, Norton EC. Time to include time to death? The future of  health care expenditure predictions. Healh Econ 2004; 13: 12-18. doi: 10.1002/hec.831
21. Seshamani M. Alongitudinal study of the effects of age and time to death on hospital costs. J Healh Econ 2004; 23: 18-26.
22. Miller T. Increasing longevity and medicare expenditures. Demography 2001, 38: 11-24. doi: 10.1353/dem.2001.0018
23. Spillman B, Lubitz J . The effect of longevity on spending for acute and long-term care. New Engl J Med 2000; 342: 6-14. doi: 10.1056/NEJM200005113421906
24. Minor AF . The cost of maternity care and childbirth in the U.S. Health Insurance Association of America, 1989.
25. Busse R, Krauth C, Schwartz FW. Use of acute hospital beds does not increase as the population ages: results for a seven year cohort study in Germany. J Epidemiol Commun H 2002; 56: 4-19. doi: 10.1136/jech.56.4.289
26. Watson D. More Doctors or Better Care? Health Policy 2009; 5: 5-27. doi: 10.12927/hcpol.2009.21000
27. Gerdtham UG, Jonsson B. Handbook of Health Economics. Elsevier; 2000. doi: http://dx.doi.org/10.1016/S1574-0064(00)80160-2
28. Lavy V, Strauss J, Thomas D, Vreyer P. Quality of health care, survival and health outcomes in Ghana. J Health Econ 1996; 15: 333-57. doi: http://dx.doi.org/10.1016/0167-6296(95)00021-6
29. Wang J, Jamison D. International differences in the impact of doctors on health: a multilevel analysis of OECD countries. J Health Econ 2004; 24: 531-60. doi: http://dx.doi.org/10.1016/j.jhealeco.2004.09.003
30. Alderman H, Lavy V. Household Responses to Public Health Servises: Cost and Quality Tradeoffs. The World Bank Research Observer 1996; 11: 3-22. doi: 10.1093/wbro/11.1.3
31. Pan J, Liu GG. The determinants of Chinese provincial government health expenditures: evidence from 2002–2006 data. Health Econ 2011; 16: 25-50. doi: 10.1002/hec.1742
32. Blomqvist AG, Carter R. Is health care really a luxury? J Health Econ 1997; 16: 207-29. doi: http://dx.doi.org/10.1016/S0167-6296(96)00534-6
33. Xianbo Z, Fengping T. A comparative study on the health care and medical service consumption of urban and rural households in China. Jour. J Econ Stud 2011; 88: 12-16. doi: http://dx.doi.org/10.1108/01443581111096123
34. Gbesemete KP, Gerdtham U. Determinants of health care expenditure in Africa: A cross-sectional study. World Dev 1992; 20: 303-8. doi: http://dx.doi.org/10.1016/0305-750X(92)90108-8
35. McGregor S. Neoliberalism and health care. Int   J  Consum  Stud 2001; 25: 82-9. doi: 10.1111/j.1470-6431.2001.00183.x
36. Niklas P. The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter? Health Econ 2010; 29: 797-810. doi: http://dx.doi.org/10.1016/j.jhealeco.2010.07.008
37. Bordignon M, Turati G. Bailing out expectations and public health expenditure. Health Econ 2009; 28: 305-21. doi: http://dx.doi.org/10.1016/j.jhealeco.2008.12.008
38. Chen CS, Liu TC, Chiu WT, Lin HC. Impact of hospital and physician characteristics on medical expenditures for acute myocardial infarction hospitalization. Int J Cardiol 2007; 121: 127-9. doi: 10.1016/j.ijcard.2006.08.058
39. Clemente J, Marcuello C, Montanes A, Pueyo F. On the international stability of health care expenditure functions: are government and private functions similar? J Health Econ 2004; 23: 589-613. doi: http://dx.doi.org/10.1016/j.jhealeco.2003.08.007
40. Narayan PK, Narayan S. Does environmental quality influence health expenditures? Empirical evidence from a panel of selected OECD countries. Ecol Econ 2008; 65: 367-74. doi: http://dx.doi.org/10.1016/j.ecolecon.2007.07.005
41. Moscone F, Tosetti E. Testing for error cross section independence with an application to US health expenditure. Reg Sci Urban Econ 2010; 40: 283-91. doi: http://dx.doi.org/10.1016/j.regsciurbeco.2009.08.004
42. Pesaran MH. A simple panel unit root test in the presence of crosssection dependence. J Appl Econom 2007; 22: 265-312. doi: 10.1002/jae.951
43. Westerlund J(2007). Testing for Error Correction in Panel Data. Oxford B Econ Stat 2007; 69: 709-48. doi: 10.1111/j.1468-0084.2007.00477.x
44. Pesaran MH. Estimation  and  Inference  in  Large  Heterogeneous Panels with a Multifactor Error Structure. Cambridge University; 2004. doi: 10.1111/j.1468-0262.2006.00692.x
45. Bai J, Chihwa K, Serena Ng. Panel cointegration with global stochastic trends. J Econometrics 2009; 149: 18-26. doi: http://dx.doi.org/10.1016/j.jeconom.2008.10.012
46. Brugha R, Zwi A. Improving the Quality of Private Sector Delivery of  Public Health Services: Challenges and Strategies. Health Policy Plann 1998; 13: 107-20.
47. Moscone F, Tosetti E. Health expenditure and income in the United States. Health Econ 2010; 19: 1385-403. doi: 10.1002/hec.1552
48. Hansen P, King A. Health care expenditure and GDP: panel data unit root test results—comment. J Health Econ 1998; 17: 377-81. doi: http://dx.doi.org/10.1016/S0167-6296(98)00028-9
49. Leu RE, Schaub T. More on the impact of smoking on medical care expenditures. Soc Sci Med 1985; 21(7): 825-7. doi: http://dx.doi.org/10.1016/0277-9536(85)90131-5
50. Getzen T. Health care is an individual necessity and a national luxury: applying multilevel decision models to the analysis of health care expenditures. J Health Econ 2000; 19: 259-70. doi: http://dx.doi.org/10.1016/S0167-6296(99)00032-6
51. Jacobzone S. Coping with Ageing: International Challenges. Health Affair 2000; 19: 12-24. doi: 10.1377/hlthaff.19.3.213
52. Gerdtham U, Bengt J. Conversion factor instability in international comparisons of health care expenditure. J Health Econ 1991; 10: 7-26. doi: http://dx.doi.org/10.1016/0167-6296(91)90005-8
53. Dolores JR. The impact of fiscal decentralization on infant mortality rates: Evidence from OECD countries. Soc Sci Med 2011; 73: 1401-7. doi: http://dx.doi.org/10.1016/j.socscimed.2011.07.029
54. Hotchkiss DR, Jeffery J, Keshav K. Household health expenditures in Nepal: implications for health care financing reform. Health  Policy Plann 1998; 13: 12.
55. OConnell JM. The Relationship Between Health Expenditure and the Age Structure of the Population in OECD Countries. Health Econ 1996; 5: 5-17.