Economic Impact of Defense Expenditures in Turkey: A Dual-Approach Analysis from 1974 to 2021

Abstract

This study presents a comprehensive analysis of the influence of defense expenditures on the Gross Domestic Product (GDP) in Turkey from 1974 to 2021. Defense spending, crucial for national security, often diverges from regular civic investments such as education, healthcare, and transportation. The significance of these expenditures becomes evident in times of international tension, terrorist threats, and warfare. Globally, defense budgets are escalating, and Turkey, a North Atlantic Treaty Organization (NATO) member, is no exception. Recent trends show a decline in Turkey's public defense spending, with current levels lower than in the 1960s yet higher than the NATO average during 2014-2021. Concurrently, private sector investment in the defense industry has risen, underscoring Turkey's involvement in global defense dynamics. This research adopts the Autoregressive Distributed Lag (ARDL) bounds test and the Toda-Yamamoto causality test to scrutinize the long-term and causal relationships between defense spending and economic growth. The ARDL bounds test reveals a long-term negative cointegration relationship, while the Toda-Yamamoto test indicates a unidirectional causal relationship from defense expenditures to GDP at a 10% significance level. These findings affirm the Neoclassical economic theory's postulation of a negative impact of defense spending on growth. Despite this, the paper argues for the necessity of sustained defense expenditures in Turkey, given its unique historical and geopolitical context. The study navigates through various theoretical perspectives, notably the Keynesian and neoliberal approaches, and their specific adaptations in defense economics: military Keynesianism and private military services. It critically assesses these frameworks, integrating their critiques into the analysis. The study contributes to the discourse on defense economics by providing empirical evidence from a critical NATO member, balancing the theoretical debate with practical insights from Turkey's experience. This dual approach, combining empirical analysis with theoretical exploration, offers a nuanced understanding of the complex interplay between defense spending and economic growth, particularly in geopolitically sensitive regions.