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The Defense-growth nexus: An application for the Israeli-Arab conflict

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  • Abu-Qarn, Aamer

Abstract

This paper revisits the defence-growth nexus for the rivals of the Israeli-Arab conflict over the last four decades. To this end, we utilize the Toda and Yamamoto (1995) causality test and the generalized variance decomposition. Contrary to the conventional wisdom and many earlier studies, we fail to detect any persistent adverse impact of military expenditures on economic growth. Our conclusions are kept intact even when we account for the possibility of endogenous structural breaks and during the post-1979 peace treaty period. Our findings imply insignificant peace dividends once the conflict is resolved and the military spending is cut to internationally acceptable standards.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22275.

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Date of creation: 2010
Date of revision: 2010
Handle: RePEc:pra:mprapa:22275

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Keywords: Growth; Middle East; Israeli-Arab conflict; Causality; Generalized Forecast Error Variance Decomposition;

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  1. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  2. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(6), pages 449-461.
  3. Zapata, Hector O. & Rambaldi, Alicia N., 1996. "Monte Carlo Evidence On Cointegration And Causation," Staff Papers, Louisiana State University, Department of Agricultural Economics and Agribusiness 31690, Louisiana State University, Department of Agricultural Economics and Agribusiness.
  4. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2003. "Government expenditures, military spending and economic growth: causality evidence from Egypt, Israel, and Syria," Journal of Policy Modeling, Elsevier, Elsevier, vol. 25(6-7), pages 567-583, September.
  5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  6. Julide Yildirim & Selami Sezgin & Nadir Ocal, 2005. "Military Expenditure And Economic Growth In Middle Eastern Countries: A Dynamic Panel Data Analysis," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(4), pages 283-295.
  7. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9710, Faculty of Economics, University of Cambridge.
  8. Joerding, Wayne, 1986. "Economic growth and defense spending : Granger Causality," Journal of Development Economics, Elsevier, Elsevier, vol. 21(1), pages 35-40, April.
  9. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 113-44, January.
  10. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 225-250.
  11. Michael Beenstock, 1998. "Country survey XI: Defence and the Israeli economy," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(3), pages 171-222.
  12. Karl R. DeRouen Jr., 1995. "Arab-Israeli Defense Spending and Economic Growth," Conflict Management and Peace Science, Peace Science Society (International), Peace Science Society (International), vol. 14(1), pages 25-47, February.
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