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Convergence of Health Care Expenditures Across the US States: A Reconsideration

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Abstract

Current evidence on the convergence of health care expenditures across the US states into a single convergence club is non-existent. Against this backdrop, we use a modified panel unit root test that accounts for smooth structural changes, spanning the period of 1966–2009. The results illustrate that the ratio of the individual health care expenditures relative to the cross-sectional average is broken trend-stationary, not only in the aggregate panel, but also across all 50 US states. The findings also document that the evidence of convergence is possibly due to the convergence of personal disposable income across the US states.

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Notes

  1. For instance, integration in health care markets and common policies related to the promotion of health, living and working conditions, as well as, coordination of health-related research (Wang 2009).

  2. Enders and Lee (2012) suggest that the frequencies in (2) should be obtained via the minimization of the sum of squared residuals. However, their Monte Carlo experiments suggest that no more than one or two frequencies should be used, due to the loss of power associated with a larger number of frequencies.

  3. For the sake of completeness, we also implemented the IPS test with only a constant, and with and without the Fourier function. In the former case, the null hypothesis of unit root could not be rejected even at the 10 % level of significance, with the test statistic generating a value of −1.4031. In the case we included the Fourier function, the null of a unit root was rejected at the 1 % level of significance, with the value of the IPS test statistic being −2.1655. However, when we implemented the SPSM methodology, we found that only 11 out of the 50 states were showing evidence of convergence in health care expenditures. However, given the data plots which clearly showed a trend in the data, the more accurate specification of the IPS test should include a trend and a stronger rejection of the null in the case where the IPS test equation specification includes a trend vindicates our point.

  4. As a robustness check, using the club clustering methodology of Phillips and Sul (2007), we also obtained strong evidence of convergence in the real per capita health care expenditures, as suggested by the presence of only one convergence club across all 50 states. The time-varying convergence paths also indicated that convergence across the states started to take place quite early in the sample period, with complete convergence taking place towards the end of the same period. Complete details of these results are available upon request from the authors. Note that in the Phillips and Sul (2007) approach, the metric of interest is the natural logarithmic values of real per capita health care expenditures.

  5. Interestingly however, the methodology of Phillips and Sul (2007) indicates that the null hypothesis of a single convergent club for real per capita personal disposable income is rejected, suggesting the presence of three clubs. Complete details of these results are available upon request.

  6. At this stage it is important to specify that given the evidence of cross-sectional dependence, as indicated by Pesaran’s (2004) test for both our metrics on health care expenditures and personal disposable income, the critical values for the modified IPS test are obtained using 10,000 bootstrap replications. The Pesaran (2004) test statistics of cross-sectional dependence obtained for the metric for the health care expenditure and personal disposable income was equal to 2.8036 (p value = 0.0051), and −3.3282 (p-value = 0.0009), respectively, implying the rejection of the null of cross-sectional independence in both cases.

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Acknowledgments

We would like to thank two anonymous referees for many helpful comments and suggestions that significantly improved the quality of this work. Needless to say, any remaining errors are solely ours. We would like to thank Donald G. Freeman, Sam Houston State University, for providing us with the dataset.

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Authors and Affiliations

  1. University of Piraeus, Piraeus, Greece

    Nicholas Apergis & Christina Christou

  2. Feng Chia University, Taichung, Taiwan

    Tsangyao Chang

  3. University of Pretoria, Pretoria, South Africa

    Rangan Gupta

Authors
  1. Nicholas Apergis
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  2. Tsangyao Chang
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  3. Christina Christou
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  4. Rangan Gupta
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Correspondence to Nicholas Apergis.

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Apergis, N., Chang, T., Christou, C. et al. Convergence of Health Care Expenditures Across the US States: A Reconsideration. Soc Indic Res 133, 303–316 (2017). https://doi.org/10.1007/s11205-016-1357-7

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