Income and total expenditure on health in OECD countries : evidence from panel data and Hsiao's version of Granger non-causality tests

Panel data and Hsiao's version of Granger non-causality tests are used to revisit the relationship between GDP and aggregate health care spending, their growth rate series and de-trended series. The possible causality is assumed to be valid in either or in both directions. For the sample of 34 OECD countries tested over the period 1970-2012, it appears that the bilateral relationship is predominant in sample countries. Interestingly, our results show evidence with Hsiao method based on final prediction error (FPE) that the lag length of relationship between health care expenditure and GDP is much higher that is found in previous empirical studies. The lag length is around 8. We consider this as an additional merit of the method as it helps us to avoid some inference problems with series being co-integrated or having different orders of integration.