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Title: |
Social Security Expenditure and GDP in OECD Countries: a Cointegrated Panel Analysis |
| Author: |
Lee, Chien-Chiang and Chang, Chun-Ping |
| Author
Affiliation: |
National Chung Hsing University; National Sun Yat-sen University, Taiwan |
| Source: |
International Economic Journal, September 2006, v. 20, no. 3, pp. 303-320 |
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Publication Date: |
September 2006 |
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Abstract: |
Using panel data unit root tests and panel cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as the fully modified OLS, this paper re-examines the long-run co-movement and the causal relationship between GDP and social security expenditure in a bivariate model, employing data on 25 OECD countries from 1980 to 2001. Our cointegration test results show strong evidence in favor of the existence of a long-run equilibrium cointegrating relationship between GDP and social security expenditure after allowing for a heterogeneous country effect. Regarding the panel-based error correction model, we find that GDP and social security expenditure lack short-run causality, but reveal the existence of long-run bidirectional causality. This shows that, in the long run, economic growth must be based on a social welfare policy that should be carried out, and economic growth can facilitate contiguous development in a social welfare policy. Lastly, we also provide evidence to support that social security expenditure can affect growth through the savings and human capital accumulation in OECD countries. |
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