In a recent article, with a strong theoretical argument but poor empirical support, military spending was identified to be a determinant of real exchange rate or a factor causing the PPP to deviate from equilibrium exchange rate. The poor empirical results were mostly due to a small number of observations (21 cross-sectional). This article employs pooled data from across 37 developing countries over the 1985--1998 period and provides very strong empirical support for the notion that indeed increased military spending could cause the PPP to deviate from equilibrium exchange rate.
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Volume (Year): 12 (2005) Issue (Month): 11 (September) Pages: 663-667 Download reference. The following formats are available: HTML
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