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Does Defence Spending Impede Economic Growth? Cointegration And Causality Analysis For Pakistan

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  • Muhammad Shahbaz
  • Talat Afza
  • Muhammad Shahbaz Shabbir

Abstract

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

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File URL: http://hdl.handle.net/10.1080/10242694.2012.723159
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Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

Volume (Year): 24 (2013)
Issue (Month): 2 (April)
Pages: 105-120

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Handle: RePEc:taf:defpea:v:24:y:2013:i:2:p:105-120

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Cited by:
  1. Goodness C. Aye & Mehmet Balcilar & John P. Dunne & Rangan Gupta & Renee van Eyden, 2013. "Military Expenditure, Economic Growth and Structural Instability: A Case Study of South Africa," Working Papers 201344, University of Pretoria, Department of Economics.
  2. Shahbaz Muhammad & Carlos Leitao Nuno & Salah Uddin Ghazi & Mohamed Arouri & Frederic Teulon, 2014. "Should Portuguese Economy Invest in Defense Spending? A Revisit," Working Papers 2014-380, Department of Research, Ipag Business School.
  3. Tiwari, Aviral & Shahbaz, Muhammad, 2011. "Does Defence Spending Stimulate Economic Growth in India?," MPRA Paper 30880, University Library of Munich, Germany, revised 18 Apr 2011.
  4. Muhammad, Shahbaz & Reza, Sherafatian-Jahromi & Muhammad, Nasir Malik, 2012. "Linkages between Defence Spending and Income Inequality in Iran," MPRA Paper 41983, University Library of Munich, Germany, revised 14 Oct 2012.

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