Method: We performed moderate-N and moderate-T time series analysis using 14 OECD countries panel data. Data were collected from multiple sources (Penn World Table and OECD Health data) and 20 to 50 observations (1960-2010, at most) for each country.
Result: Panel unit root test revealed non-stationary nature of variables and Mean-group estimator implied the existence of co-movement between per capita health expenditure and per capita GDP. At the same time, though, long run relationship between them was insignificant. We then proceeded to countrywise first-differenced VAR analysis. In most countries, bi-directional granger causality was found to exist between the growth of per capita health expenditure and the growth of per capita GDP. Interestingly, positive shock on health spending growth in Japan brought significant positive response in her economic growth for a next couple of years, but not vice versa.
Conclusion: Most developed countries worries about skyrocketing medical expense and its effect on national budget. That expense is sometimes thought as a stumbling block for economic growth. There are several theoretical pathways through which health promotes economic growth, but those were hardly supported empirically in developed countries. Our results indicate that health expenditure may positively affect GDP growth, or at least has no harm on it, even in developed countries. Keeping national health expenditure in check itself is often thought as policy goal, though, people’s health and welfare should be a top priority. ‘Health promotes wealth’ may ease some budget pressure, although further investigation of its testable logic behind surely needed.