Abstract:

The present study investigates the correlation between health expenditure, economic growth, and CO2 emissions in 26 OECD countries during the period of 1992-2014. First of all, cross-sectional dependence of the variables and the panel was assessed with a view to identify the panel methods usable for this purpose. Given the prevalence of cross-sectional dependence regarding the variables and the panel, the panel unit root and cointegration test was chosen from among second generation tests. The variables were found to be stationary at order I(1). Moreover, the model was found to exhibit a cointegration relationship. In the light of estimations of the cointegration factors, the elasticity coefficients of economic growth and CO2 emissions were predicted to be 0.188 and 0.012 respectively. According to the results of VECM Granger causality analysis, economic growth as well as CO2 emissions are causative with respect to health expenditure, whereas economic growth, once again, is causative with respect to CO2 emissions. A long-term causality analysis, in turn, revealed a direct correlation whereby economic growth and CO2 emissions lead to increased health expenditure.

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