In this study, we focus on the demographic and economic factors that determine the size of health expenditure/GDP at country level, and estimate the effect of those factors on health expenditure size by using the density weighted average derivative method proposed by Powell et al. (1989). The estimation results of a single index model using data of 173 countries show that per capita GDP and the fraction of the elderly have significantly positive impacts on the health expenditure size. The estimation results predict that the health expenditure of Korea will increase for a considerable future period. This study also proposes a method to estimate the average marginal effect of explanatory variables on the size of health expenditure. The estimation results also show that the average marginal effect of a 1% increase in the proportion of the elderly on health expenditure size is more than that of a 1% increase in per capita GDP.

Key words : ageing, health expenditure size at country level, single-index model, average derivative method, semi-parametric estimation