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Testing for structural breaks in panel varying coefficient models: with an application to OECD health expenditure

Published on Feb 1, 2011in Empirical Economics1.03
· DOI :10.1007/s00181-010-0375-6
Dandan Liu4
Estimated H-index: 4
(KSU: Kent State University),
Rui Li5
Estimated H-index: 5
(Beihang University),
Zijun Wang19
Estimated H-index: 19
(A&M: Texas A&M University)
Abstract
In this article, we propose a model selection approach for testing structural breaks in a semiparametric panel varying coefficient model. Monte Carlo evidence shows that the proposed model selection approach performs well in finite sample settings. Applying the method to an empirical data, we find evidence of structural breaks in Organisation for Economic Co-operation and Development (OECD) health expenditure data by allowing for income elasticity to be state (income)-dependent. The relationship between health expenditure and income is subject to two types of structural changes: smooth changes over income and structural breaks in the time dimension. The findings hold for both foreign exchange rate-converted and Purchasing Power Parity-converted expenditure and GDP.
  • References (35)
  • Citations (27)
References35
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#1Dennis W. Jansen (A&M: Texas A&M University)H-Index: 21
#2Qi Li (A&M: Texas A&M University)H-Index: 46
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#1M. Hashem Pesaran (University of Cambridge)H-Index: 70
#2Allan Timmermann (UCSD: University of California, San Diego)H-Index: 60
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#1Dean CorbaeH-Index: 1
#2Steven N. DurlaufH-Index: 56
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#1Andrew J. Rettenmaier (A&M: Texas A&M University)H-Index: 8
#2Zijun Wang (A&M: Texas A&M University)H-Index: 19
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View next paperThe determinants and effects of health expenditure in developed countries