Tiwari, Aviral and Shahbaz, Muhammad (2011): Does Defence Spending Stimulate Economic Growth in India?
Download (263kB) | Preview
The aim of present is to reinvestigate the effect of defence spending on economic growth using Zivot and Andrews (1992) and Lee and Strazicich, (2003) structural unit root tests and ARDL bounds testing approach to cointegration in augmented version of Keynesian model for Indian economy. Our analysis confirmed long run relationship between the variables and, results indicated positive effect of defence spending on economic growth (also negative impact after a threshold point). Investment and trade openness stimulate economic growth while economic growth is inversely affected by interest rate. Granger causality analysis showed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach.
|Item Type:||MPRA Paper|
|Original Title:||Does Defence Spending Stimulate Economic Growth in India?|
|English Title:||Does Defence Spending Stimulate Economic Growth in India?|
|Keywords:||Defence Spending, Economic Growth, Cointegration|
|Subjects:||B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics|
|Depositing User:||Muhammad Shahbaz|
|Date Deposited:||12. May 2011 07:02|
|Last Modified:||31. Dec 2015 01:32|
Abu-Bader, S. and Abu-Qarm A. (2003) Government Expenditures, Military Spending and Economic Growth: Causality Evidence from Egypt, Israel and Syria. Journal of Policy Modelling 25(6-7), 567-583.
Alesina, A. , Spolaore, E. and Wacziarg, R. (2008) Trade, Growth and Size of Countries. in (ed), P. Agnion, S.N.Durlauf, Handbook of Economic Growth, North Holland, Amstrerdam (2008).
Alexander, W.R.J. (1990) The Impact of Defence Spending on Economic Growth: A Multi-Sectoral Approach to Defence Spending and Economic Growth with Evidence from Developed Economies. Defence Economics 2, 39–55.
Ando, S. (2008) The Impact of Defense Expenditure on the Economic Growth: Panel Data Analysis based on the Feder Model. Graduate School of Commerce, Meiji University, Tokyo, Japan, Available at http://www1.doshisha.ac.jp/.
Atesoglu, H. S. (2002) Defense Spending Promotes Aggregate Output in the United States: Evidence from Cointegration Analysis. Defence and Peace Economics 13 (1), 55-60.
Atesoglu, H. S. (2009) Defense Spending and Aggregate Output in the United States. Defence and Peace Economics 20(1), 21-26.
Atesoglu, H.S., Mueller, M.J. (1990) Defense Spending and Economic Growth. Defense Economics 2, 19-27.
Babin, N. (1986) The Impact of Military Expenditures on Economic Growth and Development in the Less Developed Countries. PhD Dissertation, College Park, University of Maryland.
Baum, C. F. (2004) A review of Stata 8.1 and its time series capabilities. International Journal of Forecasting 20(1), 151-161.
Banerjee, A. and Newman, A. (1993) Occupational Choice and the Process of Development. Journal of Political Economy 101(2), 274-298.
Bannerjee, A., J. Dolado and Mestre, R. (1998). Error-correction Mechanism Tests for Cointegration in Single Equation Framework. Journal of Time Series Analysis 19(3), 267-283.
Benoit, E. (1978) Growth and Defense in Developing Countries. Economic Development and Cultural Change 26 (2), 271-287.
Birdi, A. and Dunne, J.P. (2002) An Econometric Analysis of Military Spending and Economic Growth in South Africa. Chapter 9 in Jurgen Brauer and J Paul Dunne (eds) (2002) “The Economics of Military Expenditures, Arms Production and Trade in Developing Countries”. Palgrave.
Biswas, B. and Ram, R. (1986) Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence. Economic Development and Cultural Change 34(2), 361–372.
Bose, N., Haque, E., Osborn, D. (2003) Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countries. Available at http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr30.pdf.
Cappelen, A., Gleditsch, N. P and Bjerkholt, O. (1984) Military Spending and Economic Growth in the OECD Countries. Journal of Peace Research 21(4), 361–373.
Chletsos, M. and Kollias, C. (1995). The Demand for Turkish Military Expenditure 1960-1992. Cyprus Journal of Economics 8, 64-74.
Chowdhury, A. R. (1991) A Causal Analysis of Defense Spending and Economic Growth. The Journal of Conflict Resolution 35(1), 80–97.
Christiano, L. (1992). Searching for a Break in GNP. Journal of Business and Economic Statistics 10, 237-249.
Deger, S. and Smith, R. P. (1986) Military Expenditures and Growth in Less Developed Countries. Journal of Conflict Resolution 27, 335–353.
Deger, S. (1986) Economic Development and Defense Expenditures. Economic Development and Cultural Change, 35, 179–196.
Dickey, D and Fuller, W. A. (1979) Distribution of the Estimates for Autoregressive Time Series with Unit Root. Journal of the American Statistical Association 74(366), 427-431.
Dickey, D. A and Fuller, W. A (1981) Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica 49(4), 1057-1072.
Elliott, G., Rothenberg, T.J. and Stock J.H. (1996) Efficient Tests for an Autoregressive Unit Root. Econometrica 64, 813-836.
Engle, R. F., and Granger, C. W. J. (1987) Cointegration and Error Correction Representation: Estimation and Testing. Econometrica 55(2), 251-276.
Faini, R., Annez, P and Taylor, T. (1984) Defence Spending, Economic Structure and Growth Evidence among Countries and Overtime. Economic Development and Cultural Change 32, 487-498.
Feder, G. (1982) On Exports and Economic Growth. Journal of Development Economics 12 (1/2), 59-73.
Galvin, H. (2003) The Impact of Defence Spending on the Economic Growth of Developing Countries: A Cross-section Study. Defence and Peace Economics, 14, 51-59.
Guaresma, J and Reitschuler, G. (2003) Guns or Butter? Revisited: Robustness and Nonlinearity Issues in the Defense-Growth Nexus, working paper 0310, Department of Economics, University of Vienna.
Gupta. R, Kabundi. A and Ziramba, E. (2010) The Effect of Defense Spending on the US Output: A Factor Augmented Vector Autoregression (FAVAR) Approach. Defence and Peace Economics 21(2), 135-147.
Halicioglu, F. (2003) An Econometrical Analysis of Effects of Aggregate Defence spending on Aggregate Output, METU International Conference in Economics/ VII September 6-9, 2003, Ankara, Turkey.
Halicioglu, F. (2004) Defense Spending and Economic Growth in Turkey: An Empirical Application of new Macroeconomic Theory. Review of Middle East Economics and Finance 2(3), 193-201.
Hall, A.D. (1994) Testing for a Unit Root in Time Series with pre-test Data based Model Selection. Journal of Business and Economic Statistics, 12, 461-470.
Huang, C. and Mintz, A. (1990) Ridge Regression Analysis of the Defense-growth Tradeoff in the United States. Defense and Peace Economics, 2, 19-37.
Karagol, E. (2006). The Relationship between External Debt, Defence Expenditures and GNP Revisited: The Case of Turkey. Defence and Peace Economics 17(1), 47-57.
Karagol. E and Palaz, S. (2004) Does Defence Expenditure Deter Economic Growth in Turkey? A Cointegration Analysis. Defence and Peace Economics 15(3), 289-298.
Kentor, J., Kick, E. (2008) Bringing the Military back in. Journal of World-Systems Research, XIV(2), 142-172.
Khan, M-H. (2004) Defence Expenditure and Macroeconomic Stabilization: Causality Evidence from Pakistan. SBP Working Paper Series 6, 1-17.
Khilji, N. M and Mahmood, A. (1997) Military Expenditures and Economic Growth in Pakistan. The Pakistan Development Review 36(4), 791-808.
Klein, T. (2004) Military Expenditure and Economic Growth: Peru 1970-1996. Defence and Peace Economics 15 (3), 275-288.
Lee, J. and Strazicich, M. C. (2003) Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks. Review of Economics and Statistics 85(4), 1082-1089.
Lee, J. and M. Strazicich (2004) Minimum LM Unit Root Test with One Structural Break. Working Paper, Department of Economics, Appalachian State University.
Lim, D. (1983) Another Look at Growth and Defence in Developed Countries. Economic Development and Cultural Change 31, 377-384.
Mintz, A., Huang, C. (1990) Defense Expenditures, Economic Growth and the “peace" Dividend. American Political Science Review, 84, 1283-1293.
Mueller, M.J. and Atesoglu, H.S. (1993) Defense Spending, Technological Change and Economic Growth in the United States. Defense Economics, 4, 259-269.
Murdoch, J. and Pi, C-R. (1997) Sandler, T. The Impact of Defence and Non-Defence Public Spending on Growth in Asia and Latin America. Defence and Peace Economics 8, 205-224.
Narayan, P. K and Singh, S. (2007) Modelling the Relationship between Defense Spending and Economic Growth for the Fiji Islands. Defence and Peace Economics 18(4), 391-401.
Narayan, P. K. (2005) The Saving and Investment Nexus for China: Evidence from Cointegration Tests. Applied Economics 37(17), 1979-1990.
Ng, S and Perron, P. (2001) Lag Length Selection and the Construction of Unit Root Test with Good Size and Power. Econometrica 69(6), 1519-1554.
Ng, S. and Perron, P. (1995) Unit Root Tests in ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag. Journal of the American Statistical Association, 90, 268-81.
Perron, P. (1989) The Great Crash, the Oil Price Shock and the Unit Root Hypothesis. Econometrica 57, 1361–401. Pesaran, M. H., Shin, Y. and Smith, R. J. (2001) Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 16(3), 289-326.
Phillips, P., and Perron Pierre (1988). Testing for a Unit Root in Time Series Regression. Biometrica. 75, 335-346. Pieroni, L. (2009) Military Expenditure and Economic Growth. Defence and Peace Economics 20(4), 327-339.
Ram, R. (1986) Government Size and Economic Growth: A New Framework and some Evidence from Cross-section and Time-series Data. American Economic Review 76(1), 191-203.
Ram, R. (1995) Defense Expenditure and Economic Growth. In Handbook of Defense Economics, Vol 1, edited by K. Hartley and T. Sandler. Oxford: Elsevier, 251–273.
Romer, D. (2000) Keynesian Macroeconomics without the LM Curve, NBER Working Paper 7461.
Sezgin, S. (1997) Country Survey X: Defence Spending in Turkey. Defence and Peace Economics 8(4), 381-409.
Sezgin, S. (2004) An Empirical Note on External Debt and Defence Expenditures in Turkey. Defence and Peace Economics 15(2), 1-14.
Sezgin, S. (2001) An Empirical Analysis of Turkey’s Defence-Growth Relationships with a Multi-equation Model (1956–1994). Defence and Peace Economics 12(1), 69-81.
Shahbaz, M., Afza, T and Shahbaz, M. S. (2011) Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan. Defence and Peace Economics (forthcoming).
SIPRI. (2009). SIPRI Yearbook, World Armaments and Disarmaments. Oxford: Oxford University Press.
Smith, J. S and Tuttle, M. H. (2008) Does Defense Spending Really Promote Aggregate Output in the United States? Defense and Peace Economics 19(6), 435-447.
Smith, R. (1980) Military Expenditure and Investment in OECD Countries, 1954–1973, Journal of Comparative Economics 4, 19–32..
Stewart, D.B. (1991) Economic Growth and the Defense Burden in Africa and Latin America: Simulations from Dynamic Model. Economic Development and Cultural Change 40, 189-207.
Tahir, R. (1995) Defence Spending and Economic Growth: Re-examining the Issue of Causality for Pakistan and India. The Pakistan Development Review 34(4), 1109-1117.
Tang, C F. (2008) Defence Expenditure and Economic Growth in Malaysia: A Reassessment Using Bounds and Modified Wald Tests. The IUP Journal of Public Finance 1(2), 45-51.
Taylor, J. B. (2000) Teaching Modern Macroeconomics at the Principles Level. American Economic Review 90(2), 90–94.
Tiwari, A. K and Tiwari, A. P. (2010) Defence Expenditure and Economic Growth: Evidence from India, Journal of Cambridge Studies, 5(2-3), 117-131.
Tiwari, A. K. (2009) Liberalization and Wage Inequality: Evidence from Indian Manufacturing Sector, M.phil thesis, ICFAI University Tripura, India.
Tiwari, A. K. (2011) On the Dynamics of Energy Consumption, Co2 Emission and Economic Growth: Evidence from India, Indian Economic Review (forthcoming).
Ward, M.D. and Davis, D. (1992) Sizing up the Peace Dividend: Economic Growth and Military Spending in the United States, 1948-1996. The American Political Science Review, 86, 748-755.
Ward, M.D., Davis, D., Penubarti, M., Rajmaira, S. and Cochran, M. (1991) Military Spending in India–Country Survey. Defence and Peace Economics 3(1), 41–63.
Wijeweera, A. and Webb, M. J. (2009) Military Spending and Economic Growth in Sri Lanka: A Time Series Analysis. Defence and Peace Economics 20(6), 499-508.
Wijeweera, A. and Webb, M. J. (2011) Military Spending and Economic Growth in South Asia: A Panel Data Analysis, Defence and Peace Economics (in press).
Wilkins, N. (2004) Defense Expenditure and Economic Growth: Evidence from a Panel of 85 Countries. School of Finance and Economics, University of Technology, Sydney, available at http://cama.anu.edu.au/macroworkshop/Nigel%20Wilkins.pdf.
Yildirim. J, S. Sezgin and Öcal, N. (2005) Military Expenditure and Economic Growth in Middle Eastern Countries: A Dynamic Panel Data Analysis. Defence and Peace Economics 16(4), 283-295.
Zivot, E. and D. Andrews, (1992) Further Evidence of Great Crash, the Oil Price Shock and Unit Root Hypothesis. Journal of Business and Economic Statistics 10, 251-270.