Military expenditure and economic growth in Middle Eastern countries and Turkey: a non-linear panel data approach

The economic growth effects of military expenditure have been the subject of a large literature in defence economics. Theories on the economic impacts of military expenditure greatly differ and include arguments that they either enhance economic growth or crowd out productive investments. Empirical literature on defence expenditure and economic growth nexus generally employs linear specifications to investigate the impact of defence expenditures on economic growth. Although it is now well established that many economic variables may have a non-linear data-generating mechanism, it seems that this reality has long been neglected in empirical work on defence–growth nexus. This paper attempts to fill this gap by employing non-linear panel data models to examine the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time period 1988–2012. Results show that the effect of military expenditure on economic growth is nonlinear such that the state of the economy actually determines the effect of the former on the latter. This is important not only in showing asymmetric relationship between these variables but also in revealing the reasons of mixed results of earlier literature.     

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.     

Does Income Inequality Derive the Separatist Terrorism in Turkey?

Separatist terrorism has been a severe problem for Turkey since the mid-1980s. The conventional wisdom contends that economic deprivation in southeastern Turkey is the fundamental reason for the long-running battle against the Kurdish rebels. Considering that there is limited empirical literature on the roots of terrorism in Turkey, yielding conflicting results about the claim that the main cause of terrorism is deprived economic conditions, this study aims to answer whether there is a causal relationship between income inequality and separatist terrorism in Turkey. To this end, the Global Terrorism Data Base for the period of 1973–2006, two Theil indices of pay inequality as proxy for income inequality, and the vector autoregression and Autoregressive Moving Average (ARMA) methods are utilized. The results support the early findings that income inequality, a particular focus in this paper and an essential indicator of economic deprivation, is not a main cause of escalation of separatist terrorism in Turkey.     

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 EXPENDITURE AND ECONOMIC GROWTH IN MIDDLE EASTERN COUNTRIES: A DYNAMIC PANEL DATA ANALYSIS

Defence expenditures have both costs and benefits to the economy. The costs of defence expenditures are mainly emphasized as opportunity costs. On the other hand, defence spending may have growth‐promoting potential benefits: a rise in defence spending may result in a higher aggregate demand, production and employment. This paper examines empirically the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time‐period 1989–1999. The relationship between military expenditure and economic growth is investigated by using cross‐section and dynamic panel estimation techniques. Empirical analysis indicates that military expenditure enhances economic growth in the Middle Eastern countries and Turkey as a whole.     

Military Expenditures,Income Inequality,Welfare and Political Regimes: A Dynamic Panel Data Analysis

The goal of this paper is to investigate the relationship between type of welfare regimes and military expenditures. There is a sizeable empirical literature on the development of the welfare state and on the typology of the welfare regimes. There appear to be, however, no empirical studies that examine welfare regimes with special attention to military spending. This study aims at providing a comprehensive analysis on the topic by considering several different welfare regime typologies. To do so, we use dynamic panel data analysis for 37 countries for the period of 1988–2003 by considering a wide range of control variables such as inequality measures, number of terrorist events, and size of the armed forces. We also replicate the same analyses for the political regimes. Our findings, in line with the literature, show that there is a positive relationship between income inequality and share of military expenditures in the central government budget, and that the number of terrorist events is a significant factor that affects both the level of military expenditure and inequality. Also, the paper reveals a significant negative relationship between social democratic welfare regimes and military expenditures.     

Does defence expenditure have a spillover effect on income inequality? A cross-regional analysis in China

China’s defence expenditure has been growing rapidly along with GDP growth during the past two decades. Meanwhile, the income gap has continued to increase. There are conflicting views regarding whether the defence expenditure is capable of reducing income inequality. Therefore, this paper investigates the existence of any spillover effect of defence expenditure on income inequality, with a special focus on the regional differences among 31 provinces and 7 military regions in China. We extend panel cointegration and the impulse response function by using panel data during the period of 1997–2012. The empirical results show that the defence expenditure has an impact on income inequality, and the effect varies over different regions in China. The defence expenditure has a spillover effect on income inequality in the full sample panel and the southeastern panel. An increase in the defence expenditure does not crowd out social welfare spending due to the high level of economic development and government expenditure. On the contrary, in the northern panel, the effect is opposite because of the unbalanced economic development levels within the panel. Beijing as the capital of China, benefits more from the expansion of defence expenditure thus widening the income gap. In addition, the impulse response analyses further confirm a stronger effect of the defence expenditure on income inequality in the northern and the southeastern panels over a short period.     

THE PEACE DIVIDEND EFFECT OF TURKISH CONVERGENCE TO THE EU: A MULTI‐REGION DYNAMIC CGE MODEL ANALYSIS FOR GREECE AND TURKEY

This paper examines the peace dividend effect of Turkish convergence to EU membership. By employing a multi‐region dynamic CGE model, we examine the prospect for conflict resolution if Turkey becomes an EU member. The model allows us to analyse several scenarios that imply varying amounts of reduction of the military expenditure/GDP ratios. On the one hand, this change will cause a decrease in sectoral demand for military expenditures, while on the other hand, reallocation of the reduced expenditure on (i) education, (ii) tax decrease, and (iii) infrastructure, should have a huge growth impact. Our dynamic CGE simulation experiments emphasize the economic gain for all parties involved.     

Budgetary Trade-Offs Between Defense,Education and Health Expenditures: The Case of Turkey

The main objective of this paper is to evaluate empirically the existence of a budgetary trade-off between military, education and health expenditures in Turkey for the time period 1925-1998. Development economists, peace and defense economists and political economists have extensively investigated the existence of a trade-off between military, education and health spending since the 1970s. However, the literature review reveals that it is hard to establish a general theory of budgetary trade-off between military, education and health spending and make this applicable for all cases. This is mostly due to economic, social, political, and historical differences among the countries Moreover, it is likely that different research techniques, different time periods analyzed may produce different results. As a result of this, researchers have found a variety of outcomes regarding the trade-off between defense-education and health expenditures. This study presents a brief literature review within the framework of trade-offs between defense-education and health expenditures and also concentrates on theoretical model development. The discussion will center on developing a multi-variable single equation regression model and presenting estimable forms of equations.     

Military expenditures,economic growth and spatial spillovers

The relationship between economic growth and military expenditure has been the subject of a large literature in defence economics. This study analyses the influence of military expenditures on economic growth in a global perspective for the time period 2000–2010 taking spatial dimension into account. The augmented Solow model is employed to investigate the defence-growth nexus using the cross-sectional data relating to 128 countries. Following a traditional regression analysis, spatial variations in the relationships are examined utilizing different spatial econometric specifications estimated by maximum likelihood. The regressions are compared with each other via likelihood ratio tests, and the spatial Durbin model is found to be the most appropriate one suggesting that the typical least-squares model is misspecified. Empirical evidence indicates that military expenditure has a positive effect on economic growth with a significant spatial dependence for the time period under consideration.     

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.     

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.     

Asymmetric effects of military expenditure between Turkey and Greece

One of the major topics of the defense economics literature regarding Turkey and Greece has been the empirical modeling of various aspects of arms racing. However, despite a considerable amount of research, little evidence has been found in favor of an arms race between the two countries. In the literature, this failure of applied studies has been attributed, among other reasons, to the sensitivity of the results to the underlying model specification, to small sample size, and to measurement issues. This study uses novel, nonlinear, models to investigate the possible relationship between the military expenditures of the two countries. It is assumed that if there are two regimes characterizing the low (or negative) and high-growth military expenditure periods, the growth rates of one country's military expenditure may have distinct effects on the military expenditure regimes of the other country or may contribute to the change from one regime to another. The nonlinear models examined are Smooth Transition Regression models (STRs). Strong evidence of nonlinearity for Greece is found, with asymmetry relating to two distinct regimes through lagged Turkish military expenditure changes.     

Military Spending and Economic Growth in the Middle East Countries: Bootstrap Panel Causality Test

This study revisits the causal relationship between military spending and economic growth in 10 Middle East countries via a panel causality analysis that accounts for cross-sectional dependence and heterogeneity across countries. Our results indicate unidirectional causality from military spending to growth for Turkey; one-way causality from economic growth to military spending for Egypt, Kuwait, Lebanon, and Syria; bidirectional causality for Israel; and no causality in either direction for Jordan, Oman, and Saudi Arabia. The empirical evidence does not provide consistent results regarding the causal relationship between defense expenditure and economic growth in these countries.     

Military Expenditure,Economic Growth and Heterogeneity

This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988–2010. A major focus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors, and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.     

Military expenditure and income distribution in South Korea

This paper attempts to investigate the long-run and the causal relationship between military expenditure and income distribution in South Korea for the period 1965–2011. Applying the bounds test approach to cointegration, we found a long-run relationship between military expenditure and the Gini coefficient with military expenditure having a positive and a statistically significant impact on income inequality. A 1% rise in military expenditure increased the Gini coefficient by 0.38%. Application of the lag-augmented causality test also reveals a unidirectional causality running from military expenditure to income inequality. The evidence seems to suggest that devoting more resources to the military sector may further worsen income inequality in South Korea.     

REGIONAL EFFECTS OF MILITARY BASE CLOSURES: THE CASE OF SWEDEN

The purpose of this paper is to investigate regional effects of military base closures in Sweden during the last decades. Our analysis is based on a regional growth model, where two equations are estimated; one equation describing the average income growth rate and one equation describing the net migration rate. The data set is a panel of 31 Swedish municipalities covering the period 1983–1998. Our main finding is that a closure of a military base has not had any significant impact on the subsequent average income growth rate nor the net migration rate in the affected municipalities. One potential explanation for these results relates to the labour market and the composition of the labour force.     

MILITARY EXPENDITURE AND ECONOMIC GROWTH

This paper tests the relationship between military expenditure and economic growth by including the impact of the share of military and civilian components of government expenditure in an economic growth model with endogenous technology. In this framework, we empirically consider the hypothesis of a non‐linear effect of military expenditure on economic growth. Differences between the costs and benefits of the defence sector has traditionally explained the non‐linear relationship suggesting that shocks to insecurity may also be a source of non‐linearity as they determine a re‐allocative effect within government expenditure. While parametric partial correlations are in line with empirical findings, the robustness of estimations is tested by using a non‐parametric approach. The negative relationship between military expenditure and growth in countries with high levels of military burden predicted by theory becomes significant only after including a proxy for re‐allocative effects in the growth equation.     

Allies with Benefits: US Effect on European Demand for Military Expenditures

This paper examines the security relationship between the US and Europe, focusing on potential spillin effects of US military expenditures on European demand for military expenditures during the early twenty-first century. The goal is to test whether or not European states view US expenditures as a complement or as a substitute to their own military expenditures. Past work in this area has found mixed results concerning the effect of US military expenditures, but focus strictly on the spillins within a formal alliance, specifically NATO, and use a time series dominated by Cold War dynamics. This study differentiates itself by accounting for both US total military expenditures and its regional expenditures through incorporation of US military base and personnel deployments across Europe. Additionally, this paper uses government revenue in its estimation to mitigate potential endogeneity. Findings using Arellano–Bond dynamic panel analysis suggest that there is a strong probability of substitution among European states.     

THE RELATIONSHIP BETWEEN EXTERNAL DEBT,DEFENCE EXPENDITURES AND GNP REVISITED: THE CASE OF TURKEY

This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960–1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.