The Nexus Between Defense Spending and Growth: Empirical Analysis of First Euro Users

çenberci, engin (2020): The Nexus Between Defense Spending and Growth: Empirical Analysis of First Euro Users.

Abstract

The purpose of this research is to investigate the cointegration and causality among defense spending and economic growth and to emphasize the basic relationship between them. In the study, the very first users of the euro as a currency in European Union has been researched with panel data cointegration and causality techniques and tried to fill the gap in the literature related to the defense spending-economic growth relation in euro using countries. The results show that, there is a long run cointegration but there is not any causal relationship between defense spending and economic growth. In the literature, the majority of the work related to this topic focalize on a single country and use time series analysis. The remaining works focalize on a society of countries and use panel data analysis. However, in the literature there is lack of work analysing the euro using countries in European Union. From this perspective, since there is no previous study including solely euro using countries, this study distinguishes from other studies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Panel data analysis, defense spending, economic growth.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; H - Public Economics > H5 - National Government Expenditures and Related Policies > H56 - National Security and War; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Abdel-Khalek, G., M.G. Mazloum, M.R.M. El-Zeiny (2019), “Military expenditure and economic growth: the case of India”, Review of Economics and Political Science, 5(2), 116-135, DOI:10.1108/REPS-03-2019-0025.

Ageli, M.M., S.M. Zaidan (2013), “Consequential Effects of Defence Expenditure on Economic Growth of Saudi Arabia: 1970-2012”, International Journal of Economics and Finance, 5(2), 155-163, DOI:10.5539/ijef.v5n2p155.

Akbaş, Y.E., M. Şentürk, C. Sancar (2013) “Testing for Causality between the Foreign Direct Investment, Current Account Deficit, GDP and Total Credit: Evidence from G7”, Panoeconomicus, 6, 791-812, DOI: 10.2298/PAN1306791A.

Aksoğan, G., A.Y. Elveren (2012), “Defence, Health and Education Expenditures and Income Inequality in Turkey (1970-2008): An Econometric Analysis”, Sosyoekonomi, 1, 263-280.

Anwar, M.A., Z. Rafique, S.A. Joiya (2012). “Defense Spending–Economic Growth Nexus: A Case Study of Pakistan”, Pakistan Economic and Social Review, 50(2), 163-182.

Asteriou, D., S.G. Hall (2007), “Applied Econometrics: A Modern Approach Using Eviews and Microfit Revisited Edition”, New York: Palgrave Macmillan.

Balan, F. (2015), “The Nexus between Political Instability, Defence Spending and Economic Growth in the Middle East Countries: Bootstrap Panel Granger Causality Analysis”. Economic Insights-Trends and Challenges, 67 (4), 1-14.

Bangake, C., J.C. Eggoh (2012), “Pooled mean group estimation of international capital mobility in Africa countries”, Research in Economics, 66(1), 7–17.

Benoit, E. (1973), “Defense and Economic Growth in Developing Countries”, Lexington, KY: Lexington Books.

Benoit, E. (1978), “Growth and defense in developing countries”, Economic Development and Cultural Change, 26(2).

Bildirici, M. (2004a), “Real Cost of Employment an Turkish Labour Market: A Panel Cointegration Tests Approach”, International Journal of Applied Econometrics and Quantitative Studies, 1(2), 95-120.

Bildirici, M. (2004b), “Political Instability and Growth: An Econometric Analysis of Turkey, Mexico, Argentina and Brazil, 1985 – 2004”, Applied Econometrics and International Development, 4(4), 5-26.

Bildirici, M., E. Bohur (2015), “Design and Economic Growth: Panel Cointegration and Causality Analysis”, Procedia - Social and Behavioral Sciences, 210, 193-202 DOI: 10.1016/j.sbspro.2015.11.359.

Chang, T., C.C., Lee, K. Hung, K.H. Lee (2014), “Does military spending really matter for economic growth and China and G7 countries: the roles of dependency and heterogeneity”, Defence and Peace Economics, 25(2), 177-191.

Çeti̇n, İ., S. Güzel (2019), “Military Expenditures and Economic Growth in Middle East and North African Countries”, TESAM Akademi, 6(1), 187-211. DOI: 10.30626/tesamakademi.528018.

Çevik, E.İ., G. Bektaş (2019), “Savunma Harcamaları ve Ekonomik Büyüme İlişkisi: Türkiye Örneği”, Balkan Journal of Social Sciences, 8(16), 229-236, DOI: 10.1080/10242694.2014.891356.

Dash, D.P., D.P. Bal, M. Sahoo (2016), “Nexus between defense expenditure and economic growth in BRIC economies: An empirical investigation”, Theoretical and Applied Economics, 23 (606), 89-102.

Dudzeviciute, G., K. Peleckis, V. Peleckiene (2016), “Tendencies and Relations of Defense Spending and Economic Growth in the EU Countries.”, Inzinerine Ekonomika-Engineering Economics, 27(3), 246-252, DOI:10.5755/j01.ee.27.3.15395.

Dumitrescu, E. I., C. Hurlin (2012), “Testing for Granger Non-Causality in Heterogeneous Panels”, Economic Modelling, 29(4), 1450-1460.

Georgantopoulos, A.G. (2012), “A Causal Analysis of The Defence-Growth Relationships: Evidence From The Balkans”, European Scientific Journal, 8(7), 93-110, DOI: 10.19044/esj.2012.v8n7p%25p.

Gökbunar R., H. Yanıkkaya (2004), “Savunma Harcamalarını Belirleyen Faktörler ve Ekonomik Büyümeye Etkileri”, Maliye Dergisi, 59 (1):, 159-174.

Gokmenoglu K., N. Taspinar, M. Sadeghieh (2015), “Military expenditure and economic growth: The case of Turkey”, The 16th Annual Conference on Finance and Accounting, Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic.

Granger, C. W. (1969), “Investigating causal relations by econometric models and cross-spectral methods”, Econometrica, 37(3), 424–438.

Halıcıoğlu, F. (2004), “Defense spending and economic growth in Turkey: an empirical application of new macroeconomics theory”, Review of Middle East Economics and Finance, 2(3).

Hatemi-J, A., T. Chang, W-Y. Chen, F-L. Lin, R. Gupta (2018), “Asymmetric causality between military expenditures and economic growth in top six defense spenders”, Quality & Quantity: International Journal of Methodology, 52(3), 1193-1207.

Heo, U. (2010), “The Relationship between Defense Spending and Economic Growth in the United States”, Political Research Quarterly, 63(4), 760-770, DOI: 10.1177/1065912909334427.

Hou, N., B, Chen (2013), “Military Expenditure and Economic Growth in Developing Countries: Evidence From System GMM Estimates”, Defence and Peace Economics, 24 (3), 183-193, DOI: 10.1080/10242694.2012.710813.

Huang, T., P. Wu, S. Liu (2017), “Defense–Growth Causality: Considerations of Regime-Switching and Time- and Country-Varying Effects”, Defence and Peace Economics, 28(5), 568-584, DOI: 10.1080/10242694.2016.1202002.

Im, K. S., H. Pesaran, Y. Shin (2003), “Testing for Unit Roots in Heterogeneous Panels”, Journal of Econometrics, 115(1), 53–74.

Johansen, S. (1988), “Statistical Analysis of Co-Integrating Vectors”, Journal of Economic Dynamics and Control, 12(2-3), 231–254.

Kao, C. (1999), “Spurious regression and residuals based tests for cointegration in panel data”, Journal of Econometrics, 90, 1-44.

Koban, E. (1998), “Savunma harcamaları, ekonomik etkileri ve Türkiye’deki gelişimi”, Genelkurmay Askeri Tarih ve Stratejik Etüt Başkanlığı, 355, 40-54.

Kollias, C. (1997), “Defence Spending and Growth in Turkey 1954-1993: A Causal Analysis”, Defence and Peace Economics, 8(2), 189-204, DOI: 10.1080/10430719708404875.

Kollias, C., S. Makrydakis (2000), “A note on the causal relationship between defence spending and growth in Greece: 1955–93”, Defence and Peace Economics, 11 (1), ,173-184, DOI: 10.1080/10430710008404945.

Kollias, C., S.M. Paleologou (2010), “Growth, investment and military expenditure in the European Union-15”, Journal of Economic Studies, 37(2), 228-240, DOI: 10.1108/01443581011043618.

Levin, A., C. Lin, C. J. Chu (2002), “Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties”, Journal of Econometrics, 108(1), 1–24.

Liu, L.C., C.E. Hsu, M.Z. Younis (2008), “The Association Vetween Government Expenditure and Econemic Growth:Granger Causality Test of US Data,1947-2002”, Journal of Public Budgeting, Accounting & Financial Management, 20 (4), 439-452.

Pan, C., T. Chang, Y. Wolde-Rufael (2015), “Military Spending and Economic Growth in the Middle East Countries: Bootstrap Panel Causality Test”, Defence and Peace Economics, 26(4), 443-456, DOI: 10.1080/10242694.2014.891356.

Paparas, D., C. Richter, A. Paparas (2016), “Military Spending and Economic Growth in Greece and the Arms Race between Greece and Turkey”, Journal of Economics Library, 3(1), 38-56.

Pedroni, P. (1999), “Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors”, Oxford Bulletin of Economics and Statistics, November Special Issue, 61, 653-670.

Pedroni, P. (2004), “Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis”, Econometric Theory, 20, 597-625, DOI:10.1017/S0266466604203073.

Sezgin, S. (2000), “Defence Expenditure And Economic Growth in Turkey and Greece: A Cointegration Analysis”, Muğla Üniversitesi SBE Dergisi, 1(1), 191-202.

Sheikh, M.R., M.H. Akhtar, M.I. Mushtaq (2017), “Military Spending, Inequality and Economic Growth:Evidence From Pakistan”, Pakistan Economic and Social Review, 55(2), 491-509.

Topal M.H. (2018), “Türkiye’de Askeri Harcamalar ile Ekonomik Büyüme Arasındaki İlişkinin bir Analizi (1960-2016)”, Maliye Dergisi, 174, 175-202.

Topcu, M., I. Aras (2015), “Defense spending and economic growth: Extended empirical analysis for the European Union”, Defence and Peace Economics, 26(2), 233-246, DOI: 10.1080/10242694.2013.774771.

Töngür, Ü., A.Y. Elveren (2017), “The nexus of economic growth, military expenditures, and income inequality”, Quality and Quantity, 51, 1821-1842 DOI: 10.1007/s11135-016-0368-4.

Turan, T., M. Karakaş, H.A. Özer (2018), “Askeri Harcamalar ve Ekonomik Büyüme”, Maliye Dergisi, 175, 140-153.

Ucan, O., M., Basaran, A. Akyildiz (2016), “The Defence Spending-Growth Nexus In Turkey”, European Scientific Journal of Social Sciences, June 2016 Special Edition, 53-60.

Umar, M.A., A.S.A. Bakar (2015), “Defence Expenditure and Economic Growth in Malaysia: An Application of Toda-Yamamoto Dynamic Granger Causality Test 1980-2014”, Amity Business Review, 16(1), 24-31.

Waszkiewicz, G. (2020), “Defence Spending and Economic Growth in the Visegrad Countries”, Panoeconomicus, 67(4), 539-556, DOI: 10.2298/PAN170709029W.

Wijeweera, A., M.J. Webb (2009), “Military Spending and Economic Growth in Sri Lanka: A Time Series Analysis”, Defence and Peace Economics, 20(6):499-508, DOI, 10.1080/10242690902868301.

Yakovlev, P. (2007), “Arms Trade, Military Spending, ind Economic Growth”, Defence and Peace Economics, 18(4), 317-338, DOI: 10.1080/10242690601099679.

Yildirim J., S. Sezgin, N. Öcal (2005), “Military Expenditure and Economic Growth in Middle Eastern Countries: A Dynamic Panel Data Analysis”, Defence and Peace Economics, 16(4), 283-295, DOI: 10.1080/10242690500114751.

Yildirim J., N. Öcal (2016), “Military expenditures, economic growth and spatial spillovers”, Defence and Peace Economics, 27(1), 87-104, DOI: 10.1080/10242694.2014.960246.

Yolcu Karadam, D., J., Yildirim, N. Öcal (2016), “Military expenditure and economic growth in Middle Eastern countries and Turkey: a non-linear panel data approach”, Defence and Peace Economics, 28(6), 719-730, DOI: 10.1080/10242694.2016.1195573.

Zhong, M., T., Chang, D.P. Tang, Y. Wolde-Rufael (2014), “The causal nexus between military spending and unemployment in the G7: a bootstrap panel causality test”, Defence and Peace Economics. 26(6), 609-622, DOI:10.1080/10242694. 2014.994835.