Munich Personal RePEc Archive

External debt and military spending: the case of Africa's conflict countries

Muhanji, Stella and Ojah, Kalu (2014): External debt and military spending: the case of Africa's conflict countries.

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Abstract

In the light of the exigency and apparent irrationality of war and, the fact that most Heavily Indebted Poor Countries (HIPCs) in Africa are associated with prolonged conflicts, there is more than a suspicion that military spending contributes to the indebtedness of Africa’s conflict countries. We therefore model this suspected nexus and compute the impulse response functions to the shock in military spending and, particularly determine what precise time around war external debt accumulation is prevalent. We confirm a positive correlation between military spending and external debt for most of the conflict countries, with external debt increasing in response to a shock to military spending for all these countries. Using panel analysis, we find evidence of military expenditure’s upward pressure on external indebtedness during pre-war, war and post-war periods; interestingly, the post-war period registers the fastest rate of external debt accumulation than other relevant periods. Our results suggest that military spending can be an important and nuanced factor in designing external debt management policies for Africa’s conflict countries and their likes.

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