A number of studies have estimated the income elasticity of health care expenditure to identify whether health care is a necessary or luxury product. However, the issue has received less attention in developing countries, especially in Asian economies. The current study for the first time has used the panel data covering 36 Asian countries for the period 1995-2013 for revealing the nature of health care as a product. Along with conventional econometric techniques we have addressed the issue of cross section dependence and used Westerlund (2007) panel cointegration test which is robust against cross section dependence and heterogeneity for detecting the presence of panel cointegration. By applying Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) it was found that the long run elasticity of Health Care Expenditure (HCE) with Gross Domestic Product (GDP) is less than unit implying that the health care can be regarded as necessary in nature for these countries.
Keywords: Cross section dependence; DOLS; FMOLS; Health care expenditure; Income elasticity; Panel cointegration; Panel unit root.