The Impact of Health Expenditure Shocks and Real Exchange Rates on the Value-added of the Iranian Health Sector

The health sector directly contributes to economic growth and paves the way for the development of other economic sectors. This study investigates the short-term and long-term effects of health expenditure shocks and real exchange rate fluctuations, as well as the symmetry and asymmetry of these shocks on the logarithm of value-added of the health sector in the Iranian economy.

The data related to the research variables were extracted from the website of the Central Bank of Iran (CBI) and the website of the World Bank. Using Eviews software (version 9) and applying the Hodrick-Prescott (HP) filter, health expenditure and real exchange rates were assessed as predictable and unpredictable shocks. Then, unpredictable shocks were decomposed into positive and negative components. In the next step, shocks were specified on the logarithm of value-added in the health sector along with control variables for the time period of 1973 to 2014.

Estimation of asymmetric health expenditure model and real exchange rate for the logarithm of value added of the health sector indicated different effects of health expenditure shocks in the short run and the symmetry of these shocks in the long run. But the effect of real exchange rate shocks on the logarithm of value added in the health sector in the short run and the persistence of these shocks in the long run were asymmetric and significant.

The effectiveness of health expenditure shocks on value added of the health sector in the short run is the basis for the growth of the country's macroeconomy and the effectiveness of real exchange rate shocks on the Iranian health sector, both in the short and long run, marks this variable as an important factor in the economic policies of the health sector.