Working Paper

Abstract

This paper investigates the long-run economic relationship between health care expenditure and income in the world using data on 167 countries over the period 1995-2012, collected from the World Bank data set. The analysis is carried using panel data methods that allow one to account for unobserved heterogeneity, temporal persistence, and cross-section dependence in the form of either a common factor model or a spatial process. The authors estimate a global measure of income elasticity using all countries in the sample, and for sub-groups of countries, depending on their geo-political area and income. Their findings suggest that at the global level, health care is a necessity rather than a luxury. However, results vary greatly depending on the sub-sample analyzed. The authors' findings seem to suggest that size of income elasticity depends on the position of different countries in the global income distribution, with poorer countries showing higher elasticity.