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Does defence spending impede economic growth? cointegration and causality analysis for Pakistan

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  • Shahbaz, Muhammad
  • Afza, Talat
  • Shabbir, Shahbaz Muhammad

Abstract

This study revisits the relationship between defence spending and economic growth using Keynesian model in Pakistan by applying ARDL bounds testing approach to cointegration for long run and error correction method for short span of time. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending retards the pace of economic growth confirming the validation of Keynesian hypothesis in the country. Current economic growth is positively linked with economic growth in previous period while rise in nonmilitary 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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30887.

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Date of creation: 26 Jan 2011
Date of revision: 27 Mar 2011
Handle: RePEc:pra:mprapa:30887

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Keywords: Defence Spending; Economic Growth; Cointegration; Causality; Pakistan;

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References

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Cited by:
  1. Muhammad, Shahbaz & Nuno, Carlos Leitão & Ghazi, Salah Uddin, 2012. "Should Portuguese Economy Invest in Defense Spending? A Revisit," MPRA Paper 42289, University Library of Munich, Germany, revised 26 Oct 2012.
  2. 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.
  3. Muhammad, Nasir & Muhammad, Shahbaz, 2011. "War on Terror: Do Military Measures Matter? Empirical Analysis of Post 9/11 Period in Pakistan," MPRA Paper 35635, University Library of Munich, Germany, revised 29 Dec 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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