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The link between health condition costs and standard of living: A structural equation modelling

Ozdamar, Oznur and Giovanis, E (2016) The link between health condition costs and standard of living: A structural equation modelling. Working Paper. Economic Research Forum (ERF).

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Abstract

This study employs a Structural Equation Modelling (SEM) to explore the health related costs using the Standard of Livings (SoL) approach in Turkey, employing data from the cross sectional Household Budget Survey (HBS) over the period 2002-2013. The SEM allows us to investigate all these concerns simultaneously. A health condition index is created regarding questions related to the mental and physical limitations (disability) of people. The study extends the previous research by the following ways. First, a SEM framework is introduced, which accounts for the measurement error in both SoL and health-condition indices and it allows for the simultaneous estimation of the link between health condition costs and SoL using structural equations. The underlying theory of the SoL approach is that a household’s SoL is a function of needs and income and the additional costs of disability can be estimated by comparing the standard of livings of household with and without disabled members and controlling for other source of variation. The results show that disability has a significant and negative impact on SoL. Second, exploiting the health reform of 2008, a quasi-experiment approach using difference-in-difference (DID) regression within a SEM framework between the disabled and non-disabled households takes place. The disability related costs consist of the 23 per cent of the household income corresponding to 4,000 Turkish Liras (TL).

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