STATE DEPENDENCE, UNOBSERVED HETEROGENEITY, AND HEALTH DYNAMICS IN KOREA

Abstract

This paperinvestigates the determinants of individual health and its dynamics using the Korea Laborand Income Panel Study. The paperexamines how state dependence, unobserved heterogeneity, and observed heterogeneity jointly affect overall health evolution. For this, a dynamic random effects ordered probit model with a simple solution to the initial conditions problem is estimated and the estimation results show that health dynamics in Korea are characterized by significant positive state dependence and unobserved heterogeneity. The explanatory power of many socioeconomic variables disappears if state dependence and unobserved heterogeneity are controlled for. Two robustness checks with respect to attrition bias and reporting reliability further validate these empirical results.