Military Spending and Economic Growth in Sri Lanka: A Time Series Analysis

Abstract

In this paper, we employ a VAR analysis to examine the nexus between military spending and economic growth in Sri Lanka which, due to the civil war there, has witnessed a significant increase in military spending over the last three decades while also recording healthy economic growth. The study finds that, compared with non-military spending, military spending exerts only a minimal positive impact on real GDP. Over a 10-year period, a 1% increase in non-military spending increases GDP by 1.6%. In contrast, military spending only increases GDP by 0.05%, suggesting that the economic benefits for Sri Lanka from a sustained peace may be considerable.Military spending, Sri Lanka, Economic growth, VAR analysis,

Does Defence Spending Impede Economic Growth? Cointegration and Causality Analysis for Pakistan

“…It is documented that a 1% increase in real interest rate is linked with 0.0418% decline in economic growth. These findings are consistent with the empirical results of Atesoglu (2002), Halicioglu (2004) and Wijeweera and Webb (2009).…”

“…These findings are consistent with the existing literature such as Khilji and Mahmood (1997), Atesoglu (2002), Karagol and Palaz (2004), Smith and Tuttle (2008), Tang (2008) and Keller et al (2009). The estimated coefficient of government non-military spending is showing positive impact on economic growth supporting the views of Halicioglu (2004), Yildirim et al (2005) and Wijeweera and Webb (2009). The inverse relationship is also witnessed between real interest rate and economic growth, and is consistent with findings of Halicioglu (2004).…”

“…It is found that a 5% increase in non-military expenditures raises economic growth by 0.649%. The findings are consistent with existing defence economics literature including Atesoglu (2002) for the USA, Halicioglu (2004) for Turkey, Yildirim et al (2005) for Middle Eastern countries, Tang (2008) for Malaysia and Wijeweera and Webb (2009) for Sri Lanka. Finally, real interest rate is inversely correlated with economic growth.…”

“…The seminal work of Benoit (1973Benoit ( , 1978 has spurred an increasing attention on the economic impact of defence spending with the relevant literature steadily expanding ever since (inter alia : Chowdhury, 1991;Dakurah et al, 2001;Sezgin, 2001;Atesoglu, 2002;Dunne et al, 2002;Abu-Bader and Abu-Qarm, 2003;Cuaresma and Reitschuler, 2004;Halicioglu, 2004;Bas, 2005;Yildirim et al, 2005;Kollias et al, 2007;Lee and Chen, 2007;Özsoy, 2008;Wijeweera and Webb, 2009). Broadly speaking, the findings are mixed and inconclusive with results depending on the country or sample of countries, the time period or the methodology used (for a survey of the findings and the issues see Dunne et al, 2005).…”

Should Portuguese economy invest in defense spending? A revisit

“…A series of studies found that military spending neglected/reducing the economic growth [Smith, (1977) ;Boretsky, (1975) ;Sivard, (1977); Atesoglu (2002), Ocal and Brauer (2007) and Smith and Tuttle (2008)]. However, the opposite evidence also exists in the earlier literature that military spending promotes economic growth [Benoit (1973[Benoit ( , 1978; Halicioglu (2003Halicioglu ( , 2004; Wijeweera and Webb (2009) ;Atesoglu, (2009) and, Wijewerra and Webb (2011)]. …”