Testing Health Expenditure Convergence in 21 OECD Countries by Using Nonlinear Unit Root Tests

Abstract

Objective: The purpose of this study is to analyze the stochastic time series behaviour of health expenditure in the 21 OECD countries between 1975 and 2019 using a variety of state-of-the-art (cutting-edge) unit root tests. Methods: In this study, the linear ADF unit root test and eight relevant nonlinear unit root tests are used to empirically estimate whether the 21 OECD countries' health expenditure data show convergence. Results: The empirical findings are in support the stationarity of health expenditure in 20 of the 21 OECD countries. Conclusions: Health convergence hypothesis is confirmed in most OECD countries, indicating that health expenditure shocks have solely temporary effects on country-level health expenditure. The empirical study provides significant policy implications. The empirical part of the study indicated that policy measures chosen by the policymakers cannot be made without considering possible nonlinearities in health expenditure data. More investment in the policy proposals stated in the conclusion section in the low regime years, as well as the continuation of current ones in the high regime periods, have been determined to offer appropriate conditions for health spending convergence. Furthermore, it has been determined that structural changes outside of the regime have resulted in a change in health expenditure convergence in countries such as Japan and South Korea. It is essential to invest in these countries while taking into account the periods of structural change.