Causality between Gross Domestic Product and Health Care Expenditure in the Augmented Solow’s Growth Model

Abstract

This paper examines conditional convergence of OECD countries in gross domestic product (GDP) and health care expenditure (HCE) per capita. It extends the augmented Solow model by incorporating health capital to explain variations in output and expenditure per capita across countries. The issue of causality between GDP and HCE is investigated. The results show that HCE has positive effect on the economic growth and the speed of convergence. In the HCE model a regression of the speed of convergence on variables determining the rate of convergence show close link to the variables characterising the health care system of sample countries.