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The Military Expenditure-External Debt Nexus: New Evidence From A Panel Of Middle Eastern Countries

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Paresh Kumar Narayan
Russell Smyth

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Abstract

This paper examines the impact of military expenditure and income on external debt for a panel of six Middle Eastern countries; namely, Oman, Syria, Yemen, Bahrain, Iran, and Jordan, over the period 1988 to 2002. Using Pedroni's (2004) test for panel cointegration, we find that there is a long-run relationship between external debt, military expenditure and income. The estimated long-run elasticities suggest that an increase in military expenditure contributes to a rise in external debt, while an increase in income helps the Middle Eastern countries to pay off their external debt.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 17/07.

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Length: 28 pages
Date of creation: 04 Jun 2007
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Handle: RePEc:mos:moswps:2007-17

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  1. Suleiman Abu-Bader & Aamer Abu-Qarn, 2003. "Government Expenditures, Military Spending and Economic Growth: Causality Evidence from Egypt, Israel and Syria," Working Papers 163, Ben-Gurion University of the Negev, Department of Economics. [Downloadable!]
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  2. Luintel, Kul B, 2001. "Heterogeneous Panel Unit Root Tests and Purchasing Power Parity," Manchester School, University of Manchester, vol. 69(0), pages 42-56, Supplemen. [Downloadable!] (restricted)
  3. Philip R. Lane, 2004. "Empirical Perspectives on Long-Term External Debt," The B.E. Journal of Macroeconomics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  4. Erdal Karagol & Selami Sezgin, 2004. "DO defence expenditures increase debt rescheduling in Turkey? probit model approach," Defence and Peace Economics, Taylor and Francis Journals, vol. 15(5), pages 471-480, October. [Downloadable!] (restricted)
  5. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  6. Randa Alami, 2002. "Military Debt: Perspectives from the Experience of Arab Countries," Defence and Peace Economics, Taylor and Francis Journals, vol. 13(1), pages 13-30, January. [Downloadable!] (restricted)
  7. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, Oxford University Press, vol. 20(3), pages 341-365.
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  8. Erdal Karagol, 2006. "The Relationship Between External Debt, Defence Expenditures And Gnp Revisited: The Case Of Turkey," Defence and Peace Economics, Taylor and Francis Journals, vol. 17(1), pages 47-57, February. [Downloadable!] (restricted)
  9. Benoit, Emile, 1978. "Growth and Defense in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 26(2), pages 271-80, January.
  10. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor and Francis Journals, vol. 16(6), pages 449-461, December. [Downloadable!] (restricted)
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  11. Deger, Saadet & Sen, Somnath, 1995. "Military expenditure and developing countries," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 11, pages 275-307 Elsevier. [Downloadable!] (restricted)
  12. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
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  13. Chihwa Kao & Min-Hsien Chiang, 1999. "On the Estimation and Inference of a Cointegrated Regression in Panel Data," Center for Policy Research Working Papers 2, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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  14. JP Dunne & E Nikolaidou & R Smith, 2002. "Military Spending, Investment And Economic Growth In Small Industrialising Economies," South African Journal of Economics, Economic Society of South Africa, vol. 70(5), pages 789-790, 06. [Downloadable!] (restricted)
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