Background. Health care expenditures (HCE) are consuming an ever increasing share of the economy. To understand what is driving this growth, this thesis presents an economic growth model of HCE.
Data and methods. The model is based on macroeconomic growth theory. It assumes a Cobb-Douglas production function of capital, labor, and technology. Capital is separated into physical and human components with human capital based on rate of return to schooling and years of education. Data from six industrialized countries chosen due to available data between 1970 and 2005 are analyzed.
Results. Two complementary models are used to estimate HCE growth. The first assumes HCE is a linear function of potential GDP. This model shows that HCE will asymptote as a share of the economy. The second model explains why HCE will asymptote. This model is a derivative of the Cobb-Douglas production function, which states that HCE is the product of labor and wage rate. The data show that the long-run wage rate grows at about the same rate as GDP. Wage rate differences across countries are primarily due to differences in the rates of return to education. Labor growth, a major contributor to growth in HCE for several decades, is declining asymptotically. Empirical data indicate that health care labor growth has partially been driven by new technologies that have created new jobs and partially by the increasing complexity of the health care system. The new technologies are believed to be driven by the large (relative to other sectors of the economy) amount of R&D investments made in the health care field. A contributing explanation for the labor growth is that less productive industries (e.g., service) consume more of the labor while more productive industries (e.g., manufacturing) require less labor.
Conclusions and implications. The slowdown in health care labor growth will lead HCE to asymptote as a share of the economy in all countries. One potential way to alter this asymptotic value is to adopt more labor enhancing technologies (e.g., information technologies) to make the health care industry more efficient.
|Advisor:||Anderson, Gerard F.|
|School:||The Johns Hopkins University|
|School Location:||United States -- Maryland|
|Source:||DAI-B 69/04, Dissertation Abstracts International|
|Subjects:||Economics, Public health|
|Keywords:||Expenditure growth, Health care expenditures, Industrialized countries|
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