Convergence in per capita health expenditures and health outcomes in the OECD countries

Abstract

Our analysis of 19 Organization for Economic Co-operation and Development (OECD) countries over the period 1972 to 2006 provides evidence of convergence in per capita health care expenditures for 17 countries, while the US and (to a lesser degree) Norway follow a different path. A simple decomposition of per capita health expenditures reveals that the divergence of the US comes from the divergence of the ‘ratio of health care expenditures to Gross Domestic Product (GDP)’ component, while Norway's divergence is mainly caused by the ‘labour productivity’ component. Interestingly, our results suggest that convergence in per capita health expenditures among the 17 OECD countries does not lead to convergence in health outcomes. Finally, we extend our analysis to examine convergence in various determinants of health expenditures.

Keywords:

• convergence clubs
• health expenditure
• health determinants
• health outcomes
• OECD countries

JEL Classification::

• C23
• I10

Acknowledgements

We would like to thank Donggyu Sul for making the Gauss code available to us. We are also grateful to an anonymous referee for useful comments and suggestions. Finally, the authors would like to thank the University of Crete for financial support under the KA 2877 research grant of the ‘Program of Financing Basic Research’.

Notes

¹ Wang (2009b) also focuses on the degree of convergence of US health care expenditures and its major components using state level data. His findings point to moderate convergence in total health care costs accompanied by divergence in the components.

² Note that the period and countries under scrutiny are slightly different for some of the variables examined in the following sections. The relevant information is reported in Panel B of Table 1.

³ The variable definitions are given in Table 1 (Panel B).

⁴ Baumol (1988) argues that the health sector is a service sector and as such, productivity gains may be lower than the rest of the economy. For a detailed analysis, see Hartwig (2008).

⁵ To reserve space we do not report club convergence results for health determinants. These are available from the authors upon request.