Munich Personal RePEc Archive

Should Portuguese Economy Invest in Defense Spending? A Revisit

Muhammad, Shahbaz and Nuno, Carlos Leitão and Ghazi, Salah Uddin (2012): Should Portuguese Economy Invest in Defense Spending? A Revisit.


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In this paper, we investigate the causal relationship between defence spending and economic growth in Portugal during the period of 1980-2010. We apply the ARDL bounds testing approach in the presence of structural break. These methods are robust to the violation of statistical assumptions especially when the sample size is small. The ARDL-ECM estimation results disclose that the relations between defense spending, capital, labor and economic growth are country specifics. The interesting finding of this study is that there is a U-shaped relation exists between defense spending and economic growth. In addition, the unidirectional causality from defense spending to economic growth exists in case of Portugal. Therefore, defence spending can play an important role in economic development of Portugal.

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