Does Military Spending Explode External Debt in Pakistan?
AbstractThis paper explores the effect of military expenditures on external debt in case of Pakistan over the period of 1973-2009. For this purpose, ARDL bounds testing approach is used to examine cointegration between the variables. ADF, P-P and ADF-GLS, Clemente et al. (1998) unit root tests are applied to check the order of integration of variables. OLS and ECM regressions approaches are employed to investigate marginal impact of military spending on external debt in long and short run. Our findings indicate cointegration which confirms long run relationship between military expenditures, external debt, economic growth and investment. The results reveal that a rise in military expenditures increases the stock of external debt. The inverse effect of economic growth on external debt is found and an increase in investment is also increasing external debt in the country. This study invites policy makers to approach the problem of curtailing external debt in innovative ways in case of Pakistan.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30429.
Date of creation: 28 Feb 2011
Date of revision: 21 Apr 2011
Military Spending; External Debt; Cointegration;
Find related papers by JEL classification:
- A10 - General Economics and Teaching - - General Economics - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-70, October.
- Baum, Christopher F., 2004.
"A review of Stata 8.1 and its time series capabilities,"
International Journal of Forecasting,
Elsevier, vol. 20(1), pages 151-161.
- Christopher F. Baum, 2003. "A review of Stata 8.1 and its time series capabilities," Boston College Working Papers in Economics 581, Boston College Department of Economics.
- 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., vol. 16(3), pages 289-326.
- Erdal Karagol, 2005. "Defence expenditures and external debt in Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(2), pages 117-125.
- Banerjee, Abhijit V & Newman, Andrew F, 1993.
"Occupational Choice and the Process of Development,"
Journal of Political Economy,
University of Chicago Press, vol. 101(2), pages 274-98, April.
- Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Peter Pedroni, 2004.
"Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis,"
Department of Economics Working Papers
2004-15, Department of Economics, Williams College.
- Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
- Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
- Halicioglu Ferda, 2005. "An Econometric Analysis Of The Effects Of Aggregate Defense Spending On Aggregate Output: The Case Of Turkey, 1950-2002," Macroeconomics 0503009, EconWPA.
- Yemane Wolde-Rufael, 2009. "The Defence Spending-External Debt Nexus In Ethiopia," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(5), pages 423-436.
- DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
- J Paul Dunne & Sam Perlo-Freeman & Aylin Soydan, 2003.
"Military Expenditure and Debt in Small Industrialised Economies: A Panel Analysis,"
0306, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
- Paul Dunne & Sam Perlo-Freeman & Aylin Soydan, 2004. "Military expenditure and debt in small industrialised economies: A panel analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(2), pages 125-132.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Bazoumana Ouattara, 2006. "Aid, debt and fiscal policies in Senegal," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1105-1122.
- Erdal Karagol, 2006. "The Relationship Between External Debt, Defence Expenditures And Gnp Revisited: The Case Of Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(1), pages 47-57.
- J. Paul Dunne & Sam Perlo-Freeman & Aylin Soydan, 2004.
"Military expenditure and debt in South America,"
Defence and Peace Economics,
Taylor & Francis Journals, vol. 15(2), pages 173-187.
- Mete Feridun & Muhammad Shahbaz, 2010. "Fighting Terrorism: Are Military Measures Effective? Empirical Evidence From Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(2), pages 193-205.
- Helmut Lütkepohl, 2006.
"Structural vector autoregressive analysis for cointegrated variables,"
AStA Advances in Statistical Analysis,
Springer, vol. 90(1), pages 75-88, March.
- Helmut Luetkepohl, 2005. "Structural Vector Autoregressive Analysis for Cointegrated Variables," Economics Working Papers ECO2005/02, European University Institute.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Christos Kollias & George Manolas & Suzanna-Maria Paleologouc, 2004. "Military expenditure and government debt in greece: Some preliminary empirical findings," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(2), pages 189-197.
- Morley, Bruce, 2006. "Causality between economic growth and immigration: An ARDL bounds testing approach," Economics Letters, Elsevier, vol. 90(1), pages 72-76, January.
- Selami Sezgin, 2004. "An empirical note on external debt and defence expenditures in Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(2), pages 199-203.
- Muhammad Shahbaz & Nadeem Ahmad & Abu Wahid, 2010. "Savings–Investment Correlation and Capital Outflow: The Case of Pakistan," Transition Studies Review, Springer, vol. 17(1), pages 80-97, May.
- Paresh Kumar Narayan & Russell Smyth, 2007. "The Military Expenditure-External Debt Nexus: New Evidence From A Panel Of Middle Eastern Countries," Development Research Unit Working Paper Series 17-07, Monash University, Department of Economics.
- Nadir Ocal, 2003. "Are the military expenditures of India and Pakistan external determinants for each other: An empirical investigation," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(2), pages 141-149.
- Phillips, Peter C B & Hansen, Bruce E, 1990.
"Statistical Inference in Instrumental Variables Regression with I(1) Processes,"
Review of Economic Studies,
Wiley Blackwell, vol. 57(1), pages 99-125, January.
- Tom Doan, . "FM: RATS procedure to estimate cointegrating vectors using Fully Modified Least Squares," Statistical Software Components RTS00069, Boston College Department of Economics.
- Paresh Kumar Narayan & Seema Narayan, 2008. "Does Military Expenditure Determine Fiji'S Exploding Debt Levels?," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(1), pages 77-87.
- Randa Alami, 2002. "Military Debt: Perspectives from the Experience of Arab Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(1), pages 13-30.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- Paul Turner, 2006. "Response surfaces for an F-test for cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 479-482.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.