An analytical approach on defense expenditure and economic growth: the case of Turkey and Greece

Kalyoncu, Huseyin and Yucel, Fatih (2005): An analytical approach on defense expenditure and economic growth: the case of Turkey and Greece. Published in: Journal of Economic Studies , Vol. 33, No. 5 (2006): pp. 336-343.

Abstract

The objective of this study is to examine the relationship between defense expenditure and economic growth for Turkey and Greece in the period of 1956-2003 using yearly data. Therefore we use Engle-Granger cointegration methodology and Granger causality test. It is found that these two variables are cointegrated for both countries studied. We found unidirectional causality running from economic growth to defense expenditure only for Turkey.

• Item Type: MPRA Paper
• Language: English
• Keywords: Defense Expenditure; Economic Growth; Cointegration analysis; Causality test
• Subjects: A - General Economics and Teaching > A1 - General Economics > A10 - General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes

References

Agbola F.W. and Damoense, M.Y. (2005), “Time series estimation of import demand functions for pulses in India”, Journal of Economic Studies, Vol. 32 No.2, pp.146-157.

Antonakis, N. (1997), “Military expenditure and economic growth in Greece, 1960-1990”, Journal of Peace Research, Vol. 34 No.1, pp.89-100. Atesoglu, H. S. (2002), “Defense spending promotes aggregate output in the United States -evidence from cointegration analysis” Defence and Peace Economics, Vol. 13 No.1, pp. 55–60. Bahmani-Oskoe, M. and Miteza, I. (2004), “ Panel cointegration and productivity bias hypothesis”, Journal of Economic Studies, Vol.31 No.5, pp.448-456. Bahmani-Oskoe, M., Economidou, C. and Goswami G. (2005), “How sensitive are the UK's inpayments and outpayments to the value of the British pound", Journal of Economic Studies, Vol. 32 No.6, pp. 455-467. Benoit, E. (1973), Defence and Economic Growth in Developing Countries, Lexington Books, Boston. Benoit, E. (1978), “Growth and defence in developing countries”, Economic Development and Cultural Change, Vol. 26, pp.261-80. 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, Vol. 34, pp.361-72. Cadena, L. (1998), “Greek-Turkish tensions. Conflict between Turkey and Greece over Cyprus and other territorial issues threaten both the NATO alliance and regional peace”, Princeton Journal of Foreign Affairs, Winter. Chang, T., Fang, W., Wen, L.F. and Liu, C. (2001), “Defense expenditure, economic growth and temporal causality: evidence from Taiwan and mainland China, 1952-1995”, Applied Economics, Vol. 33, pp.1289-1299. Chen, C-H. (1993), “Causality between defence spending and economic growth: the case of mainland China”, Journal of Economic Studies, Vol. 26 No.6, pp.37-43. Chletsos, M. and Kollias, C. (1995), “Defense expenditure and growth in Greece 1974-90: some preliminary econometric results”, Applied Economics, Vol. 27, pp.883-890 Deger, S. and Sen, S. (1983), “Military expenditures, spin-off and economic development”, Journal of Development Economics, Vol. 13, pp.68-83 Deger, S. (1986), “Economic development and defense expenditure”, Economic Development and Cultural Change, pp.179-196 DeRouen, K. R. (1995), “Arab-Israeli defence spending and economic growth”, Conflict Management and Peace Science, Vol. 14, pp.25-47. Derouen, K. and Heo, U. (2001), “Modernization and the military in Latin America”, British Journal of Political Science, Vol. 31, pp.475–496. Dunne, J.P., Smith, R.P. and Willenbockel, D. (2005), “Models of military expenditure and growth: a critical review” Defence and Peace Economics, Vol. 16 No.6, pp. 449–461. Eralp, D.U., Beriker, N. (2005), “Assessing the conflict resolution potential of the EU: The Cyprus conflict and accession negotiations”, Security Dialogue, Vol. 36, pp.175-192. Engle, R.F. and Granger, C.W.J. (1987), “Co-integration and error correction: representation, estimation and testing”,Econometrica, Vol. 55, pp.251-76. Fisher, J. R. (2001), “Cyprus: the failure of mediation and the escalation of an identity based conflict to an adversarial impasse”, Journal of Peace Research, Vol. 38, pp.307–326. Frederiksen, P. C. and Looney, R. E. (1982), “Defence expenditures and economic growth in development countries: some further empirical evidence”, Journal of Economic Development, Vol. 7 No.1, pp.113-25. Galvin, H. (2003), “The impact of defence spending on the economic growth of developing countries: a cross-section study” Defence and Peace Economics, Vol. 14 No.1, pp. 51–59 Gerace, M.P. (2002), “US military expenditures and economic growth: some evidence from spectral methods” Defence and Peace Economics, Vol. 13 No.1, pp. 1–11. Granger, C.W.J., (1988), “Some recent developments in a concept of causality”, Journal of Econometrics, Vol. 39, pp. 199-211. Grobar, L. and Porter, R. (1989), “Benoit revisited: defence spending and economic growth in less developed countries”, Journal of Conflict Resolution, Vol. 33, pp.318-45. Guney, A., (2004), “Mediating the Cyprus conflict: a story of success or failure”, Security Dialogue, Vol. 35, pp.27–42. Heo, U. (1996), “The political economy of defense spending in South Korea”, Journal of Peace Research, Vol. 33 No.4, pp.483-90. Heo, U. (1999), “Defense spending and economic growth in South Korea: The indirect link”, Journal of Peace Research, Vol. 36 No.6, pp.699-708. Heo, U. and Eger, R.J.(2005), “The security-prosperity dilemma in the United States”, Journal of Conflict Resolution, Vol. 49 No.5, pp.792-817. Joerding, W. (1986), “Economic growth and defense spending”, Journal of Development Economics, Vol.21, pp.35-40. Kalyoncu, H. (2005), “Fiscal policy sustainability: test of intertemporal borrowing constraints”, Applied Economics Letters, Vol.12 No.15, pp.957-963. Karagol, E. and Palaz, S. (2004), “Does defence expenditure deter economic growth in Turkey? a cointegration analysis”, Defence and Peace Economics, Vol. 15 No.3, pp. 289–298. Klein, T. (2004), “Military expenditure and economic growth: Peru 1970–1996” Defence and Peace Economics, Vol. 15 No.3, pp. 275–288. Kollias, C., Naxakis, C. and Zarangas, L. (2004), “Defence spending and growth in Cyprus: a causal analysis”, Defence and Peace Economics, Vol. 15 No.3, pp. 299–307. Lai C-N., Huang, B-N. and Yang, C-W. (2005), “Defense spending and economic growth across the Taiwan straits: a threshold regression model” Defence and Peace Economics, Vol. 16 No.1, pp. 45–57. Landau, D. (1996), “Is one of the “peace dividends” negative? military expenditure and economic growth in the wealthy OECD countries”, The Quarterly Review of Economics and Finance, Vol. 36, pp.183-95. Lim, D. (1983), “Another look at growth and defense in developed countries”, Economic Development and Cultural Change, pp.377-384 Lipow, J. and Antinori, C. M. (1995), “External security threats, defence expenditures, and the economic growth of less developed countries”, Journal of Policy Modeling, Vol. 17, pp.579-95. Love, J. and Chandra, R. (2005), “Testing export-led growth in South Asia” Journal of Economic Studies, Vol. 32 No.2, pp.132-145. Kollias, C. (1994), “The economic effects of defense spending in Greece 1963-90: some preliminary econometric findings”, Spoudai, Vol. 44, pp.114-130. Masih, A.M.M., Masih, R. and Hasan, M.S. (1997), “New evidence from an alternative methodological approach to the defence spending-economic growth causality issue in the case of mainland China”, Journal of Economic Studies, Vol. 24 No.3, pp.123-140. Mehanna, R-A. (2004), “An econometric contribution to the U.S. defense–growth nexus: evidence from error correction model”, Conflict Management and Peace Science, Vol.21, pp.121–131. Murdoch, J., Pi, C.R. and Sandler, T. (1997), “The impact of defense and non-defense public expenditure on growth in Asia and Latin America”, Defense and Peace Economics, Vol.8, pp.205- 224. Narayan, S. and Narayan, P.K. (2005), “An empirical analysis of Fiji’s import demand function”, Journal of Economic Studies, Vol.32 No.2, pp.158-168. Reitschuler, G. and Loening, J. L. (2005), “Modeling the defense-growth nexus in Guatemala”, World Development, Vol. 33 No.3, pp. 513–526. Rufael, W.Y. (2001), “Causality between defence spending and economic growth. The case of mainland China: a comment”, Journal of Economic Studies, Vol.28 No.3, pp.227-230. Rumelili, B. (2003), “Liminality and perpetuation of conflicts: Turkish–Greek relations in the context of community-building by the EU”, European Journal of International Relations, Vol. 9, pp.213–248 Sezgin, S. (1996), “Country survey X: defense expenditure in Turkey”, Defense and Peace Economics, Vol. 8, pp.381-409. Smith, R. (1980), “ME and investment in OECD countries, 1954-1973”, Journal of Comparative Economics, Vol. 4, pp.19-32. Tsakonas, P. and Tournikiotis, A. (2003), “Greece’s elusive quest for security providers: the expectations–reality gap” Security Dialogue, Vol. 34, pp.301-314.