Stationarity of health expenditures and GDP: evidence from panel unit root tests with heterogeneous structural breaks

This paper re-examines the stationarity of national health care expenditures and GDP in a panel setting utilizing data from 20 OECD countries over the period from 1960 to 1997. Previous research in this area has recognized the drawback of not allowing for structural breaks in their unit root tests and noted that their empirical results may not be robust. We advance the literature by utilizing a recently developed panel LM unit root test that allows for heterogeneous level shifts. In contrast to previous analyses that did not consider breaks, our results reject the unit root null hypothesis for both series. (C) 2003 Elsevier Science B.V. All rights reserved.