Estimation of pharmaceutical expenditure function in Iran: a time series analysis

Abstract

Objective (s): Understanding the behavior of drug demand in health sector is very important for health policy makers. In this regard, the present study aimed to estimat the pharmaceutical expenditure function during 1991 to 2010 in Iran. Methods: This was an analytical study. The study population was urban households in the country. The required data were collected from the published statistics of Iran Statistics Center for a time series of 20 years. The time series ARDL(AutoRegressive Distributive Lag) model, the Stationary Augmented Dickey Fuller Test and Bound Cointegration Test were applied to estimate the models. The Eviews 7 and Microfit5 software were used. Results: At short-term and long-term, impact of the price on expenditure of pharmaceutical was statistically insignificant. Income elasticity of pharmaceutical demand at short–term and long–term was 0.27 and 0.41, respectively (Pvalue ˂ 0.01). Elasticity of pharmaceutical expenditure with respect to expenditure of physician visit at short-term and long-term was more than 1.05 and 0.33, respectively, (Pvalue ˂ 0.01). Error Correction Coefficient [ecm (-1)] also was equal -0.66. Almost 66% of imbalance error disappeared in the first year after the imbalance (Pvalue ˂ 0.05). Conclusion: According to inelasticity of pharmaceutical demand to price and low elasticity to income, health policy makers should consider different issues (e.g. tariffs, household income and Subsidizing) when they make policy.

Keywords

• pharmaceutical expenditure
• drug demand
• price-elasticity
• income-elasticity
• ardl approach
• bound cointegration test