The causal nexus between military spending and unemployment in the G7: a bootstrap panel causality test

We revisit the causal relationship between military spending and unemployment in the G7 countries applying a bootstrap panel causality analysis that accounts for both cross-sectional dependence and for heterogeneity across countries. Using per capita real GDP as a controlled variable, we found a unidirectional causality running from military spending to unemployment for Canada, Japan, and the US, one-way causality running from unemployment to military spending for France and Germany, and bidirectional causality for Italy and the UK. The empirical evidence does not seem to provide consistent results regarding the causal relationship between military spending and unemployment in G7 countries.     

Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity

This study revisits the causal linkages between military spending and economic growth in China and G7 countries (i.e. Canada, France, Germany, Italy, Japan, the UK, and the USA) by focusing country-specific analysis for the period 1988–2010. The panel causality analysis, which accounts for both cross-country dependency and heterogeneity across countries, is employed in this study. Our results find evidence of the neutrality hypothesis for Italy, France, and Germany, the military spending–growth detriment hypothesis for both Canada and the UK, and one-way Granger causality running from economic growth to military spending for China. Furthermore, we find a feedback between military spending and economic growth in both Japan and the USA. Thus, our results do not support that one size fits all.     

DEFENSE SPENDING AND ECONOMIC GROWTH IN TURKEY: A LINEAR AND NON‐LINEAR GRANGER CAUSALITY APPROACH

This paper uses linear and non‐linear Granger causality methods to determine the causal relationship between defense spending and economic growth in Turkey for the period 1949–2004. The innovative feature of this paper is that it provides evidence regarding the nonlinear causal dependence between military spending and economic growth in Turkey. The empirical results contribute to the empirical literature by indicating support for both linear and non‐linear causality between military expenditures and economic development and they may prove useful in theoretical and empirical research by regulators and policy makers.     

Guns for Butter? Empirical Evidence from China

Abstract

This study examines the causal nexus between defence spending and education expenditure in China using the bootstrap Granger full-sample causality test and sub-sample rolling window estimation. The full-sample result indicates that there is no causality between defence spending and education expenditure. By adopting a time-varying rolling window approach to revisit the dynamic causal relationships, this article identifies a negative unidirectional causality running from education expenditure to defence spending. The finding suggests that it is the education expenditure crowds out defence spending in China rather than reverse. No causality is demonstrated from defence spending to education expenditure, indicating that an increase in military spending will not crowd out expenditure on education. The results could be partly explained by that the education expenditure in China is below the requirement of corresponding economic growth, urging for more financial budget. Whereas the findings support a negative trade-off between defence and education expenditures, they refute the theory of ‘guns for butter’.     

Military expenditure and economic development in China: an empirical inquiry

Increases in military spending have a big impact on the socioeconomic conditions in any country. However, there is no consensus as to whether the rising military expenditure is beneficial or detrimental to economic growth. The present study chose China as a case study to empirically examine a complex relationship between military expenditure and economic development. The findings from the Johansen cointegration test indicated that there existed a long-run relationship between China’s military spending and economic growth. Furthermore, the Granger causality test detected a unidirectional causality from economic development to military expenditure. These results were further confirmed by the findings from the impulse response function. This means that China represents an example of a developing economy where the size of military expenditure expands in the process of economic transformation.     

Defense–Growth Causality: Considerations of Regime-Switching and Time- and Country-Varying Effects

This paper develops a panel smooth transition vector autoregressive model to investigate the economic growth–defense causality. This model simultaneously resolves the estimation problems of endogeneity, heterogeneity, and nonlinearity. Empirical results support that the causality is bidirectional, nonlinear, time- and country-varying. Economic growth has a negative impact on military spending and vice versa. The larger the HDI, the smaller the negative causality. Evidently, the increase in the level of country development can reduce the negative impact of military outlays on economic growth. Reducing the ratio of military spending to GDP is beneficial for countries with low HDI scores; however, moderately increasing the share of military expenditure is favorable for countries with extremely high HDI scores. Policy authority needs to set optimal education, health, and economic development shares of GDP for purchasing a maximum economic growth rate.     

Causal analysis of Australian economic growth and military expenditure: A note

Chowdhury (1991) applied Granger causality methods to military expenditure and economic growth series in 55 developing countries. This note applies a similar approach to Australia and finds no causal relationship between military expenditure and growth in either direction.     

Defense Spending and Economic Growth: Some Empirical Evidence from the Arab Gulf Region

The present paper investigates the causal relationship between defense spending and economic growth in six Gulf countries for the period 1975-1998. I use Granger-causality test within a multivariate error-correction framework to explore the existence and direction of causality between these two variables. The empirical results indicate that neither growth nor defense can be considered exogenous and that the relationship between them cannot be generalized across countries. Two implications can be derived from these findings. One is the need for more studies, especially from developing countries, using time-series data. The other is that decisions on defense spending should be based on each country's socio-economic circumstances. Given the small sample size, however, caution is advised in considering the above results and their implications as final.     

A note on the causal relationship between defence spending and growth in Greece: 1955–93

The causal relationship between economic growth and defence spending has attracted considerable attention and has been the subject of many empirical studies. This paper investigates the existence of a causal link between military expenditure and economic growth in the case of Greece for the period 1955–93. By European Union standards, Greece allocates substantial human and material resources to defence. At the same time, Greece is the poorest European Union member facing chronic economic problems. Using the concept of Granger‐causality, the findings reported herein suggest that neither variable Granger‐causes the other disclosing thereof the absence of any causal ordering between them.     

The nexus between military expenditures and economic growth in the BRICS and the US: an empirical note

This empirical note re-examines the causal linkages between military expenditures and economic growth for the BRICS countries (Brazil, Russia, India, China, and South Africa) and that for the USA during the period 1988–2012. Results of Granger causality tests show that military expenditures influence economic growth in the USA, economic growth influences military expenditures in both Brazil and India, a feedback between military expenditures and economic growth in Russia, and no causal relation exists between military expenditures and economic growth in China and South Africa. The findings of this study can provide important policy implications for the BRICS countries and also for the USA.     

Introduction: Symposium on defence economics

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.     

Defence spending and economic growth: A causal analysis for Greece and Turkey*

There are a number of studies which consider the relation between military spending and economic growth using Granger causality techniques rather than a well‐defined economic model. Some have used samples of groups of countries, finding no consistent results. Others have focused on case studies of individual countries, which has the advantage of the researchers bringing to bear much more data than the cross country samples and a greater knowledge of the structure of the economy and the budget. This paper adds to the literature by providing an analysis of two countries, Greece and Turkey, which are particularly interesting case studies given their high military burdens, the poor relations between the two and the resulting arms race in the area. In addition to analysing the data using standard “pre‐cointegration” Granger causality techniques, this paper employs modern vector autoregressive (VAR) methodology that utilises cointegration via Granger's representation theorem. The standard Granger causality tests suggest a positive effect of changing military burden on growth for Greece, but this is not sustained when the cointegration between output and military burden is taken into account. The only evidence of significant Granger causality is a negative impact of military burden on growth in Turkey.     

Military Spending and Economic Growth in South Asia: A Panel Data Analysis

Despite the large number and variety of studies addressing the relationship between military spending and economic growth, a consensus regarding the exact nature of any relationship between the two has proven elusive. This study uses a panel co-integration approach to examine the relationship between military spending and economic growth in the five South Asian countries of India, Pakistan, Nepal, Sri Lanka and Bangladesh over the period of 1988–2007. It finds that a 1% increase in military spending increases real GDP by only 0.04%, suggesting that the substantial amount of public expenditure that is currently directed towards military purposes in these countries has a negligible impact upon economic growth.     

Revisiting the Defense–Growth nexus in European countries

This study revisits the long run and dynamic causal linkages between defense spending and economic growth in 15 selected European countries for the period 1988–2010 by utilizing recent developments in non-stationary panel data analysis. To this end, the series properties of per capita defense spending, per capita real capita stocks, and per capita real GDP are investigated by the panel unit root tests with and without breaks that support evidence on unit root. The panel cointegration tests with and without breaks are also subsequently employed to investigate whether there exists a long-run equilibrium relationship between these three variables. Finally, our causality analysis from panel vector error-correction model suggests that there is a feedback relation between real capital stock and real GDP in both short and long run, a one-way Granger causality running from real GDP to defense spending in both short and long run, and defense spending only Granger causes real capital stock in the long run.     

DOES DEFENCE SPENDING STIMULATE ECONOMIC GROWTH IN INDIA? A REVISIT

This study reinvestigates the effect of defence spending on economic growth using Zivot and Andrews and Lee and Strazicich, structural unit root tests and the autoregressive distributed lag bounds testing approach to cointegration in augmented version of Keynesian model for India. Study confirmed long run relationship among variables studied show that economic growth is positively affected by defence spending (also negative impact after a threshold point), investment and trade openness while negatively by interest rate. Granger causality analysis revealed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach.     

Military Expenditure,Endogeneity and Economic Growth

Abstract

While not always a concern for the general economic growth literature, the debate over the effects of military spending on growth continues to develop, with no consensus, but a deepening understanding of the limitations of previous work. One important issue that has not been adequately dealt with is the endogeneity of military spending in the growth equation, mainly because of the difficulty of finding any variables that would make adequate instruments. This paper considers this issue, using an endogenous growth model estimated on a large sample of 109 non-high-income countries for the period 1998–2012. The empirical analysis is framed within an instrumental variable setting that exploits the increase in military spending that occurs when unrest in a country escalates to turmoil. The estimation results show that endogeneity arising from reverse causality is a crucial issue, with the instrumental variable estimates providing a larger significant negative effect of military spending on growth than OLS would. This result is found to be robust to different sources of heterogeneity and different time periods.     

Panel Causality Analysis Between Defence Expenditure and Economic Growth in Developed Countries

There is much controversy in the literature over whether military expenditures have a positive, negative or no relation impact on economic growth. The aim of this paper is to determine the relationship between GDP and defence expenditure. The study analyses GDP and defence expenditures of the developed countries with cross-sectional ADF and SURADF unit root tests using annual data for the years 1980–2007. We conclude that in the long term, according to the Pedroni cointegration test, there exists a relationship between defence expenditure and economic growth. Furthermore, by utilizing the Granger causality test, we find that defence expenditure is a factor in economic growth. In other words, our study validates the hypothesis that defence spending by economically developed countries positively contributes to their economics.     

Military Spending and Growth: The Role of Institutions

Recent literature on whether military spending affects economic growth argues that the relationship may be a conditional one. We add to this literature by considering the role that ‘good institutions’ play in the effect of military spending on growth. Using data from a sample of over 100 countries from 1988 to 2010, our analysis suggests that the effect of military spending on growth is generally negative or zero at best, and this effect is mitigated in the presence of good economic and political institutions.     

Externalities in Military Spending and Growth: The Role of Natural Resources as a Channel through Conflict

This investigation re-examines the potential sources of positive externalities for the relationship between military spending and economic growth using recent advances in panel estimation methods and a large data-set on military expenditure. The investigation provides a new analysis on the relationship between conflict, corruption, natural resources and military expenditure and their direct and indirect effects on economic growth. The analysis finds that the impact of military expenditure on growth is generally negative as in the literature, but that it is not significantly detrimental for countries facing higher internal threats and for countries with large natural resource wealth once corruption levels are accounted for.     

MILITARY EXPENDITURE AND UNEMPLOYMENT RATES: GRANGER CAUSALITY TESTS USING GLOBAL PANEL DATA

This paper investigates the empirical relationships between military expenditure and unemployment rates. A set of global panel data on 46 countries is utilized, and a panel data version of the Granger causality test is applied. The results indicate that there is little evidence of the causality running from unemployment to military expenditure regardless of how we measure military spending and determine group countries. In contrast, the causality running from military expenditure to unemployment receives empirical support if military expenditure is measured in terms of its share of GDP and if data are taken from middle‐ and low‐income countries or non‐OECD countries.