Quotation Shaikh, Mujaheed, Gandjour, Afschin. 2018. Pharmaceutical expenditure and gross domestic product: Evidence of simultaneous effects using a two‐step instrumental variables strategy. Health Economics. 28 101-122.


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Abstract

This paper estimates the income elasticity of government pharmaceutical spending and assesses the simultaneous effect of such spending on gross domestic product (GDP). Using a panel dataset for 136 countries from 1995 to 2006, we employ a two‐step instrumental variable procedure where we first estimate the effect of GDP on public pharmaceutical expenditure using tourist receipts as an instrument for GDP. In the second step, we construct an adjusted pharmaceutical expenditure series where the response of public pharmaceutical expenditure to GDP is partialled out and use this endogeneity adjusted series as an instrument for pharmaceutical expenditure. Our estimations show that GDP has a strong positive impact on pharmaceutical spending with elasticity in excess of unity in countries with low spending on pharmaceuticals and countries with large economic freedom. In the second step, we find that when the quantitatively large reverse effect of GDP is accounted for, public pharmaceutical spending has a negative effect on GDP per capita particularly in countries with limited economic freedom.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Health Economics
Citation Index SSCI
WU-Journal-Rating new FIN-A, STRAT-A, VW-B, WH-A
Language English
Title Pharmaceutical expenditure and gross domestic product: Evidence of simultaneous effects using a two‐step instrumental variables strategy
Volume 28
Year 2018
Page from 101
Page to 122
Reviewed? Y
URL https://onlinelibrary.wiley.com/doi/abs/10.1002/hec.3832
DOI http://dx.doi.org/10.1002/hec.3832
Open Access Y
Open Access Link https://onlinelibrary.wiley.com/doi/epdf/10.1002/hec.3832

Associations

People
Shaikh, Mujaheed (Former researcher)
External
Gandjour, Afschin (Frankfurt School of Finance and Management, Germany)
Organization
Health Economics and Policy Group AB (Details)
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