Defense Spending and Economic Growth in China, India, Nepal and Pakistan: Evidence from Cointegrated Panel Analysis

Abstract

The study investigates the nexus between defense spending and economic growth in China, India, Nepal and Pakistan. The empirical analysis is based on integration and cointegration properties of data over the period [1988][1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005][2006][2007]. The long run relationship between defense spending, economic growth and public debt are identified in a cointegration framework. The paper finds bidirectional causality between economic growth and public debt in China and India; unidirectional causality from defense spending to economic growth in China and Nepal, unidirectional causality from public debt to defense spending in India, and unidirectional causality from economic growth to public debt in Pakistan. The panel Granger causality test, however, confirms the presence of bidirectional causality between public debt and economic growth. The cointegration test at the end suggests that defense spending of a particular country can affect the defense spending of other country.

The Nexus between Military Spending and Economic Growth in Newly Industrialized Countries: Panel Evidence from CrossSectional Dependency

“…According to Dumitrescu and Hurlin (2012) causality test, the feedback hypothesis is valid in the newly industrialized countries. When compared to previous studies, the result obtained in this study seems to support the studies of Chowdhury (1991), LaCivita (1991), Pradhan (2010) and Chang et al (2015).…”

“…Chowdhury (1991), LaCivita and Frederiksen (1991) supported the "feedback hypothesis" in their studies. Similarly, in the study he carried out on 5 Asian countries, Pradhan (2010) supported the feedback hypothesis for Philippines and defended that a unidirectional causal relationship from economic growth to military spending is valid for Indonesia, Malaysia, Singapore and Thailand.…”

The Macroeconomic Impact of Defense Expenditure on Economic Growth of Pakistan: An Econometric Approach

“…Hassan et al (2003) stated that defense expenditure can affect positively through an increase in security or expansion of aggregate demand and affect negatively through crowd out investment. In case of developed countries, increase defense spending is negatively related with economic growth, employment and investment (Ram, 1995;Wilkins, 2004;Pradhan, 2010). In case of developing countries, the situation is unclear and complex.…”

The relationship between military expenditure and certain growth and development related variables in transition economies: A panel data analysis

“…The relevant empirical literature demonstrates the use of a variety of methods such as Granger causality (Chen, 1993;Chang et al, 2001), co-integration methods (Masih et al, 1997;Pradhan, 2010) and OLS (Bing-Fu and Liming, 2006). Menla Ali and Dimitraki (2014) consider nonlinearities important, as these are highly associated with fiscal policy variables such as government expenditure.…”