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Military Spending and Inequality: Panel Granger Causality Test

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  • Lin, Eric S.
  • Ali, Hamid E.

Abstract

The relationship between military spending and economic inequality is not well documented within the empirical literature, while numerous studies have uncovered the linkages between military spending and other macroeconomic variables, such as economic growth, unemployment, purchasing power parity, black market premium, poverty and investment. The purpose of this article is to examine the causal relationship between military spending and inequality using BVC and SIPRI data across 58 countries from 1987 to 1999. Panel unit root tests indicate that two inequality measures (Theil and EHII) under consideration are likely to be non-stationary. The authors' work addresses the adverse implications of modeling with non-stationary variables, since this omission casts serious doubt on the reliability of the relationship between military spending and inequality. The recent developed panel Granger non-causality tests provide no evidence to support the causal relationship in either direction between the military spending and the change in economic inequality. The results are consistently robust to alternative data sources for military spending, to alternative definitions of the inequality measures, to the log transformation of the military spending, to the deletion of some data points, and to the division of OECD and non-OECD countries. Finally, the impulse responses and variance decompositions based on the panel vector autoregressive regression model are consistent with the findings relied on Granger non-causality tests.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40159.

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Date of creation: 2009
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Publication status: Published in Journal of Peace Research September.46(2009): pp. 671-685
Handle: RePEc:pra:mprapa:40159

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Keywords: Military Spending; Inequality; Panel Granger Causality;

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References

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  1. Paul Dunne & Duncan Watson, 2000. "Military expenditure and employment in South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 587-596.
  2. Mark Gradstein & Branko Milanovic & Yvonne Ying, 2001. "Democracy and Income In-Equality: An Empirical Analysis," CESifo Working Paper Series 411, CESifo Group Munich.
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  6. Mohsen Bahmani-Oskooee & Gour Gobinda Goswami, 2005. "Military spending as another cause of the failure of the PPP," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 663-667.
  7. Charles M. Beach, 1974. "Cyclical Sensitivity of Aggregate Income Inequality," Working Papers 162, Queen's University, Department of Economics.
  8. 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.
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  10. Venet, Baptiste & Hurlin, Christophe, 2001. "Granger Causality Tests in Panel Data Models with Fixed Coefficients," Economics Papers from University Paris Dauphine 123456789/6159, Paris Dauphine University.
  11. Jurgen Brauer, 2007. "Data, Models, Coefficients: The Case of United States Military Expenditure," Conflict Management and Peace Science, Peace Science Society (International), vol. 24(1), pages 55-64, February.
  12. 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, vol. 16(4), pages 283-295.
  13. Christos Kollias & Stelios Makrydakis, 2000. "A note on the causal relationship between defence spending and growth in Greece: 1955-93," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(1), pages 173-184.
  14. Christophe Hurlin, 2005. "Un test simple de l'hypothèse de non-causalité dans un modèle de panel hétérogène," Revue économique, Presses de Sciences-Po, vol. 56(3), pages 799-809.
  15. Julide Yildirim & Selami Sezgin, 2003. "Military expenditure and employment in Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(2), pages 129-139.
  16. 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.
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Citations

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Cited by:
  1. Töngür, Ünal & Elveren, Adem Yavuz, 2014. "Deunionization and pay inequality in OECD Countries: A panel Granger causality approach," Economic Modelling, Elsevier, vol. 38(C), pages 417-425.
  2. Unal Tongur & Adem Yavuz Elveren, 2012. "Military Expenditures, Inequality, and Welfare and Political Regimes: A Dynamic Panel Data Analysis," ERC Working Papers 1210, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
  3. Ali Hamid E., 2011. "Military Expenditures and Human Development: Guns and Butter Arguments Revisited: A Case Study from Egypt," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 17(1), pages 1-21, September.
  4. Ucal, Meltem & Karabulut, Gokhan & Bilgin, Mehmet Huseyin, 2009. "Military Expenditures and Inequality: Empirical Evidence from Israel," MPRA Paper 48643, University Library of Munich, Germany.
  5. 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.
  6. Unal Tongur & Sara Hsu & Adem Yavuz Elveren, 2013. "Military Expenditures and Political Regimes: An Analysis Using Global Data, 1963-2001," ERC Working Papers 1307, ERC - Economic Research Center, Middle East Technical University, revised Jul 2013.

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