Proposes to re-examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike’s FPE statistics and a likelihood ratio test for over- and under-fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error-correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger-causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long-run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed-door economy.
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Volume (Year): 24 (1997) Issue (Month): 3 (September) Pages: 123-140 Download reference. The following formats are available: HTML
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