Convergence and the Determinants of Health Expenditures

1 Sep 2017

Health expenditures in many developed countries have grown faster than their national incomes, meaning that the health sector consumes an increasing proportion of the overall economy. Economists have shown that the bulk of this growth is attributable to new health technologies and that the other influential factors include the aging of the population, the widespread availability of insurance, and income itself.

In their forthcoming paper in Health Economics Review, entitled “Convergence and Determinants of Health Expenditures in OECD Countries” Dr Son Nghiem (QUT) and Professor Luke Connelly (Director (Acting), CBEH) apply techniques that have been used in the international economic growth literature to test the hypothesis that health expenditures in countries with similar levels of economic development converge over time. The results on 21 Organisation of Economic Cooperation and Development (OECD) countries, over a period of 30 years, produce no evidence that health expenditures do converge overall. There is, however, evidence of convergence in three sub-groups of these countries.

The results of their research suggest that the explanations and predictions of economic growth based on existing models are unlikely to be affected by convergence. The reason this result is important is that it suggests that policy-makers in countries with relatively low health expenditure countries need not be concerned that international convergence will frustrate their attempts to contain health expenditures at home. It also means that policy-makers in high expenditure countries cannot afford to be complacent about expenditure control at home: microeconomic policies to contain health expenditure growth must be relied upon, because the evidence suggests that they cannot rely upon convergence to lower the trend rate of growth.