Technology as a 'major driver' of health care costs: a cointegration analysis of the Newhouse conjecture

Abstract

Per capita real income on the demand-side and technological change, proxied by total R&D and health R&D spending, on the supply-side are hypothesized as major drivers of per capita real health care expenditure in the US during the 1960-1997 period. The findings are robust to a battery of unit root and cointegration tests. They support the Newhouse [Journal of Economic Perspectives 6 (1992) 3] conjecture that technological change is a major escalator of health care expenditure and confirm a significant and stable long-run relationship among per capita real health care expenditure, per capita real income and broad-based R&D expenditures. Policy implications are noted.