tiểu luận kinh tế lượng FACTORS AFFECTING HOUSEHOLDS’ HEALTH CARE EXPENDITURE IN COUNTRIES IN 2016

We choose the health expenditure as a dependent variable and life expectancy, final consumption expenditure, out of pocket expenditure, GDP per capita as independent variables.. This ess

FOREIGN TRADE UNIVERSITY

FACULTY OF INTERNATIONAL ECONOMICS

Dr Chu Thi Mai Phuong

GROUP MEMBERS

1 Nguyễn Thị Hương Mai – 1815520201

2 Phan Đức Long - 1815520199

3 Đỗ Thị Thu Phương - 1815520215

Table of Contents

ABSTRACT 1

I, INTRODUCTION: 2

1, Basic concept: 2

2, Why we choose this topic? 2

II, LITERATURE REVIEW 2

III, THEORETICAL BACKGROUND 4

1, Overview of the study of factors affecting households’ health care expenditure in countries in 2016 4

2, Research model & research hypothesis 5

2.1 Research model 5

2.2 Research hypothesis 7

IV DESCRIPTIVE STATISTIC OF DATA: 8

1 Source of data 8

2 Statistical description 8

3 Correlation matrix between variables 10

V ECONOMETRIC MODEL 11

VI ROBUSTNESS CHECK 12

1 Multicollinearity 12

2 Normality 12

3 Heteroscedasticity 14

4 Testing an individual regression coefficient 16

5 Testing the overall significance 17

VII FINDINGS & DISCUSSION 18

VIII CONCLUSION 19

REFERENCES 20

ABSTRACT

The purpose of this report is to understand more about Econometrics by running a regression model and discussing its result The topic of our research team is health care expenditure, one of the issues that are close to our lives today We choose the health expenditure as a dependent variable and life expectancy, final consumption expenditure, out of pocket expenditure, GDP per capita as independent variables After collecting data from 158 countries in the world, we run the model and come up with the result as follows

The result indicates that apart from life expectancy, other independent variables all have linear relationships with the dependent variable Their regression coefficients are statistically significant in the model

However, the regression coefficient of life expectancy variable is not statistically significant in our model Therefore, the relationship between health expenditure and life expectancy is not inferred

Overall, we can conclude that our model is statistically significant at 5% level of significance

From the above results, we make some recommendations in order to give readers a closer look about this model in practice

I INTRODUCTION:

1 Basic concept:

A healthy nation they say is a wealthy nation Healthcare is important to the society

because people get ill, accidents and emergencies do arise and the hospitals are needed

to diagnose, treat and manage different types of ailments and diseases Many of people’s aspirations and desires cannot be met without longer, healthier, happy lives The healthcare industry is divided into several areas in order to meet the health needs of individuals and the population at large All over the world, the healthcare industry would continue to thrive and grow as long as man exists hence forming an enormous part of any country’s economy

Expenditure on health is growing faster than the rest of the global economy, accounting for 10% of global gross domestic product (GDP) World Health Organization (WHO) reveals a swift upward trajectory of global health spending, which

is particularly noticeable in low- and middle-income countries where health spending

is growing on average 6% annually compared with 4% in high-income countries

2 Why we choose this topic?

Since this subject has become more and more noteworthy, as economics students,

we decided to review the topic: “Factors Affecting Households' Health Care Expenditure in Countries in 2016”

In the report, we used econometrics tool “GRETL” to analyze the data we have researched on World Bank This essay aims at evaluating the impact of GDP per capita, life expectancy at birth, final consumption expenditure and out of pocket expenditure

on health care expenditure of 158 random nations all over the world In the end, we are bound to achieve an objective look into the issue as well as apply appropriate measures

to make progress in practicing health care tasks

II LITERATURE REVIEW

Regarding to household's health care expenditure, in the past there are a number

of research and articles which indicated that expenditure on health is growing

rapidly A study of “Determinants of Health Care Expenditures and the Contribution of Associated Factors” in Korea during 2003-2010 showed that health

care expenditures have been drastically increasing every year Medical expenses covered by health insurance, which were about 13 trillion won in 2001, had jumped 2.6-fold by 2010, reaching around 34 trillion Korean won This was an average

increase of over 11% annually in the first decade of the 21st century Such a trend raises concerns over the sustainability of health insurance finance following the increase in health care expenditures Medical costs can be explained by determinant factors that are produced by multiplying the volume of health services by the unit cost

per service According to the report “Determinants of Healthcare Expenditure in Economic Cooperation Organization (ECO) Countries: Evidence from Panel Cointegration Tests” from The International Journal of Health Policy and

Management, there are two completely contradictory views about the relationship between healthcare spending and production levels First, healthy workers are more efficient than others They have more time for working and their time is not wasted for treatment Secondly, health expenditures are considered as “costs” These expenditures cause resources transfer from other sectors of economy to the health sector and are the reason why the level of production has diminished in countries

Therefore, health economists pay more attention to health expenditures and study the determinants of health expenditures A research in the United States has shown that the share of GDP devoted to healthcare expenditures grew from 9% in 1980 to 16% in

2008 Meanwhile, in Iran, the health expenditures per capita increased from $80 in

1995 to $247 in 2005 in average exchange rates Long-term prediction also indicates that health expenditures continue to increase The findings of the study revealed a positive long-term relationship between the percentage of urbanisation and the health expenditures In another happenings, Baltagi and Moscone (Badi H Baltagi &

Moscone 2010) present a negative long-term relationship was found between the health expenditures and ageing groups In case the proportion of the individuals

below 15 and over 65 years old is more in a country, the country is considered healthy and, as a result, people consume less expensive healthcare compared to a country with unhealthy people Banins found that health expenditures increased when a country reached higher life expectancy and started to decrease after achieving its peak A

detailed study from World Health Organization named “The determinants of health expenditure: A Country-level Panel Data Analysis” gave some key finding as well

First factor affecting on household health expenditure is income In global literature, Musgrove, Zeramdini and Carrin used cross section data from 191 countries in 1997 and found that income elasticity of health expenditure was between 1.133 and 1.275 depending on the data included

III THEORETICAL BACKGROUND

1 Overview of the study of factors affecting households’ health care expenditure in countries in 2016

Health care expenditure is the amount spent by individuals, groups, nations, or

private or public organizations for medical care, prevention, promotion, rehabilitation, community health activities, health administration and regulation and capital formation with the predominant objective of improving health

In general, health care is only valued to the extent that it improves health, so health

is primitive in the description of consumers‟ preference Changes in consumer attitudes toward health care can also change demand For example, television, movies, magazines, and advertising may be responsible for changes in people's preferences for cosmetic surgery Moreover, medical science has improved so much that we believe there must be a cure for most ailments As a result, consumers are willing to buy larger

quantities of medical services to prolong their life expectancy Life expectancy has

been improving for many decades, and there is evidence that health among the elderly

is also improving The aging process changes both the body and the mind Many aging changes are physiological in nature, as the body begins to degenerate and break down

Declining health is a common issue with aging, with many illnesses and diseases plaguing the elderly population For this reason, the consumption for healthcare is important to the elderly Hence, when people are getting older, their spendings for healthcare are increasing

The relationship between Life Expectancy and Healthcare Expenditure

In the report of WHO, the households with high Out of Pocket Expenditure have

the higher spending on healthcare than the lower ones Out-of-pocket payments (OOPs) are defined as direct payments made by individuals to health care providers at the time

of service use This excludes any prepayment for health services, for example in the form of taxes or specific insurance premiums or contributions and, where possible, net

of any reimbursements to the individual who made the payments OOPs are part of the health financing landscape in all countries relying on user fees and co payments to mobilize revenue, rationalize the use of health services, contain health system costs or improve health system efficiency and service quality

According to WHO, Health expenditure share, or the percentage of the household expenditure spent on health care, is a necessary spending for members of the households In the national accounts expenditure on goods and services that are used for the direct satisfaction of individual needs (individual consumption) or collective needs of members of the community (collective consumption) is recorded in the use of income account under the transaction final consumption expenditure (FCE) The most

important part of final consumption expenditure is household final consumption expenditure (including healthcare expense)

2 Research model & research hypothesis

2.1 Research model

2.1.1 Methodology

• Method of collecting data The collected data is in the form of secondary information and cross - section data, showing the factors which affect households‟ health care expenditure based on

158 observations in 2016 in 158 countries The data was taken from the highly accurate source which is World Bank

• Method used to analyze the data and derive the model The team used multiple linear regression model in combination with OLS (Ordinary Least Square) estimation method to analyze the relationship between health expenditure and other factors including GDP per capita, life expectancy at birth, final consumption expenditure and out of pocket expenditure

During the course of the project, the team used the knowledge of econometrics with the main support of GRETL software, Microsoft Excel, Microsoft Word for synthesis and completion of this project

2.1.2 Theoretical model specification

• Determine the model type From the reference of previous researches, the team decided to use population linear regression function to carry out the project The population regression function consists of 1 dependent variable and 4 independent variables

HE = 𝛃₀ + 𝛃₁.LIFE + 𝛃₂.GDP + 𝛃₃.FCON + 𝛃₄.OOP + 𝑢

Where: 𝜷₀: intercept term 𝜷𝗃: partial regression coefficients u: disturbance

• Explain the variables

Table 1: Explain the variables and expected sign

regression coefficient

HE Health care expenditure Current US$

GDP Gross domestic product

per capita

FCON Final consumption

expenditure

OOP Out of pocket expenditure Current US$ +

Source: The research group self-synthesis

Theoretically, all independent variables have a positive relationship with dependent variable

- That life expectancy is higher leads to the increase in the elderly population

It is well understood that ageing population require more health services which could result in higher health expenditure

- GDP is the most effective factor in determining the health expenditures

Countries with good economic infrastructure have more knowledge about the benefits

of healthcare and, consequently, they use healthcare more than other countries

- As the concern of good health among people is rising, they demand for more health goods and services Therefore, higher consumption expenditure may consist of higher health expenditure

- The expenses that the patient or the family pays directly to the health care provider, without a third-party (insurer, or State) is known as “Out of Pocket Expenditure‟ Higher out of pocket expenses will lead to higher health expenditure

2.2 Research hypothesis

After studying related theories and referring to domestic and foreign studies, our

research team searched and synthesized following hypotheses to study the factors affecting the households ‟healthcare expenditure” of countries in the world

Table 2: Hypotheses of the factors affecting the households

regression coefficient

LE Life expectancy has a positive effect on

healthcare expenditure The higher life expectancy is, the more spending people spend on their healthcare

+

GDP GDP has a positive effect on healthcare

expenditure The higher GDP is, the more spending people spend on their healthcare

+

FCON Final Consumption Expenditure has a positive

effect on healthcare expenditure The higher Final Consumption Expenditure is, the more spending people spend

on their healthcare

+

OOP Out of Pocket Expenditure has a positive effect

on healthcare expenditure The higher Out of Pocket Expenditure is, the more spending people spend on their healthcare

+

Source: The research group self-synthesis

IV DESCRIPTIVE STATISTIC OF DATA:

1 Source of data

Source of data used for each variable is in this below table:

Table 3: Source of data used

Variable Type of variable Short - form Year Source of data Health expenditure Dependent HE 2016 World bank Life expectancy Independent LIFE 2016 World bank Gross

Domestic Product

Independent GDP 2016 World bank

Final consumption expenditure

Independent FCON 2016 World bank

Out of pocket expenditure

Independent OOP 2016 World bank

2 Statistical description

The typical data representing the variables are listed in the table below:

Table 4: The typical data representing the variables

Variable Number of observation Mean Std.Dev Max Min LIFE 158 69.78425 9.151229 82.84268 45.1 GDP 158 13164.41 18743.24 104965.3 234.2356 FCON 158 79.45112 19.26681 154.0412 12.17321 OOP 158 204.6979 304.3439 2332.798 1.773446

HE 158 1006.304 1733.355 8021.81 12.85765

Source: The research group self-synthesis

The standard deviation of variable LIFE is 9.151229 It can be seen that the data are relatively high standard deviation, high level of dispersion, showing the relatively high difference among countries Developed countries like Japan, Switzerland, Italy, etc usually have a high average life expectancy meanwhile that in Africa or some part

in Asia are of the low average longevity As population in rich countries is now becoming older, the spending on healthy expenditure will increase

● The standard deviation of variable GDP is 18743.24 We can realize the high standard deviation result in large gap in the average income between countries This is understandable due to the variance in development of each region This featured marked

a lot because income and spending have positive relation, the increasing of the former will lead to the rise of the latter, including the spending on health expenditure

● The mean value of FCON is relatively high, about $79.45112 US and standard deviation is 19.26681 Most private sector healthcare expenditure was from household final consumption expenditure, for example, the expenses for medicine, medical device

as well as the cost for treatment The standard deviation is high because the need and consumption for health expenditure in each region changes depending on situation, because of the variation in price

● The standard deviation of variable OOP is 304.3439, reach the top with 2332.798

in Switzerland, followed by developed countries such as Norway, Australia, etc and get the lowest value of 1.773446 in Mozambique, followed by mostly African countries like Malawi, Congo, etc.This resulted from the fact that This private cost borne by citizens is also referred to as the out-of-pocket health expenditure Out of pocket payments are those which are made at the point of service In most of the developing