Duy-econometrics

Thursday, April 16, 2015

11:17 AM

3. Life expectancy at birth public health expenditure per capita

a. Before conducting any empirical analysis, briefly discuss your expectations about the relationship between the two variables.
We expect that "Life expectancy at birth" and "Public health expenditure per capita" have correlated relationship which can be modelled regressively
where the first is dependent variable and the latter is independent one.
b. what do summary descriptive statistics and histograms of public expenditure on health and life expectancy indicate about their distributions.
Statistical results:

Some notes can be drawn:

- The variable of "Life expectancy at birth" might follow the rule of normal distribution where the skewness and kurtosis are approximately 0 and
3 respectively (their real value has been boxed in red).
- The variable of "Public health expenditure per capita" is not likely to normally distributed because the values of skewness and kurtosis, which
are boxed in blue, are significantly larger than the value of 0 and 3, respectively.
Considering their histograms:

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Considering their histograms:

We use Shapiro - Wilk W test to examine whether or not those variables are normally distributed.

With P-value < 0.05, all results has statistical significance. As the above table can be seen, value of W of "Life expectancy at birth" is approximately
equal to one whereas value of W of "Public health expenditure per capita" is just 0.59 .
In conclusion, by observing results from statistical viewpoint, "Life expectancy at birth" has normally distributed while the other "Public health
expenditure per capita" has non-normally distributed.

c. Before running a regression analysis draw some broad inferences about the plausibility of the model by creating a scatterplot of life expectancy
and public expenditure on health. How would you describe the relationship between the two variables? Assess the relationship by computing a
correlation ratio and interpret your results.

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As we can see, there are a highly correlated relationship between Life expectancy at birth, denoted by dependent variable Y, and Public health
expenditure per capita which is denoted by independent variable X. Some inferences are drawn:
- The graph shows that a non-linear association between X and Y.
- We can use the model created based on the set of data of "Life expectancy at birth" and "Public health expenditure per capita" for estimation
purpose due to the fitted line.
- There is a positively correlated among two variables.
- There are some outliners.

We use Stata to calculate the correlation coefficient between X and Y.

Thus, correlation coefficient between X and Y is 0.5426 and indicates a positively correlated relationship among 2 variables.
Then, we need to test this result by using Spearman test because variable X is non-normally distributed.

The result shows that there is a close bond between Y, "Life expectancy at birth", and X, "Public health expenditure per capita".
Although the fitted line is fit to the plots in the graph except a few of outliners, it seems that the coefficient of correlation is not really high, which is
0.5426 . There are two reasons to explain this:
- Relationship among those variables is non-linear whereas the correlation coefficient reflects linear one.
- X is non-normally distributed while Y has normal distribution.
And according to result of Spearman test, we obtain that the "real" correlation coefficient is 0.8440 .
d. Generate a new variable ln(Health expenditure per capita). Create a scatter plot of life expectancy and ln(Health expenditure per capita) and
compute the correlation ratio between them. Do these results influence the potential regression specification to be chosen?
Graph:

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We can see the relationship among two variables changed from non-linear to almost linear.
Thus, we can compute correlation ratio more accurately:

The correlation coefficient value is 0.7731 which is far larger than 0.5426 which is from the previous results.
To conclude, choosing the potential regression specification is strongly impact to value of coefficient of correlation and might make researchers
reach some wrong decisions.
e. Assess the impact of public health expenditure on life expectancy by undertaking the following bivariate regression analyses and then summarize
your results.
Regressing model:

Because P-value < 0.05, the estimation of and is significant at level of 5%. Thus, we obtain the equation:
The value of coefficient of determination is 0.2944 means that the estimated regression equation explains 29,44% variations of values of Y. And
this is also significant at 5% by doing F-test which results in the fact that p-value < 0.05.
Regressing model:

Because P-value < 0.05, the estimation of and is significant at level of 5%. Thus, we obtain the equation:

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This regression equation explains 59.76% differences of values of Y with level significance of 5%.
To summarize, both regression model illustrates there is a positively correlated effect of Health expenditures to variations of Life expectancy.
f. Conduct a literature survey and select two economic studies that have analyzed the influence of health expenditure on life expectancy. Briefly
summarize their main findings and review whether your results are different from them, and if so, why this might be the case.

First of all, it is important to mention an economic study "The relationship between life expectancy at birth and health expenditures estimated
by a cross-country and time-series analysis" was researched by Elisabeta Jaba, Christiana Brigitte Balan and Ioan-Bogdan Robu from "Alexandru
Ioan Cuza" University of Iasi, 22 Carol I Avenue, Iasi 700505, Romania and published by Procedia Economics and Finance 15 (2014) from page
108 to page 114. Some keys is noted:
The set of data which consisted of two variables, Health care expenditures per capita (USD) and Life expectancy at birth (years), were collected
for 175 countries, grouped according to geographic position and income level, over 16 years from 1995 to 2010.
They applied a panel data analysis to estimate Life expectancy by a function of Health expenditures.
They used regression model without function of nature logarithm of explanation variable Health care expenditure.
There is a significant relationship between Health expenditures and Life expectancy.
Country effects are significant and show the existence of important differences among the countries.
Secondly, "Public and private pharmaceutical spending as determinants of health outcomes in Canada" of Pierre Cremieux et al. published by
Health Economics 03/2005 shows that:
The paper measures the statistical relationship between drug spending in Canadian provinces and overall health outcomes.
The analysis relies on more homogenous data and includes a more complete set of controls for confounding factors than previous studies.
Results show a strong statistical relationship between drug spending and health outcomes, especially for infant mortality and life expectancy at
65.
The analysis further indicates that substantially better health outcomes are observed in provinces where higher drug spending occurs.
Simulations show that if all provinces increased per capita dug spending to the levels observed in the two provinces with the highest spending
level, an average of 584 fewer infant deaths per year and over 6 months of increased life expectancy at birth would result.
Overall, our results are the same as both studies above except the fact that we highly recommend to use function of logarithm in the model in
order to reflect more accurately the relationship between Life expectancy and Health expenditures.

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