Health care spending and economic output: Granger causality

Abstract

Granger causality is tested for to examine the exogeneity of GDP which is assumed in previous research on the determinants of aggregate health care spending. In theory, the causal relationship between these variables could be in either or both directions. For some of the 20 OECD countries tested it appears that health care expenditure Granger causes GDP, and vice versa for others. Therefore care must be taken when specifying health care expenditure and growth equations respectively in defining the appropriate ‘independent’ (and exogenous) and ‘dependent’ variables. In particular, these results suggest that standard models of aggregate health care expenditure may be misspecified.