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Defence expenditure and economic growth: A case study of Sri Lanka using causality analysis

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  • Selvanathan, Saroja
  • Selvanathan, Eliyathamby A

Abstract

Many countries allocate a significant amount of their income to defence related expenses, especially when involved in internal or external military conflicts. Political stability in a country is a key ingredient for attracting foreign and local investors and hence for economic growth. This paper analyses the relationship between defence expenditure and economic growth in Sri Lanka using data for the period 1975–2013 applying the latest developments in time series analysis. Interestingly, the results show that, in Sri Lanka, defence expenditure causes economic growth. There is no causal effect from economic growth to defence expenditure as generally expected. This result is unique as Sri Lanka went through 30 years of civil war which ended in 2009, which resulted in the loss of tens of thousands of civilian lives and cost several billions of dollars in annual defence expenditure throughout the war years.

Suggested Citation

  • Selvanathan, Saroja & Selvanathan, Eliyathamby A, 2014. "Defence expenditure and economic growth: A case study of Sri Lanka using causality analysis," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 4(2), pages 69-76.
  • Handle: RePEc:gok:ijdcv1:v:4:y:2014:i:2:p:69-76
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    1. Chen, Pei-Fen & Lee, Chien-Chiang & Chiu, Yi-Bin, 2014. "The nexus between defense expenditure and economic growth: New global evidence," Economic Modelling, Elsevier, vol. 36(C), pages 474-483.
    2. Hannah Galvin, 2003. "The impact of defence spending on the economic growth of developing countries: A cross-section study," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(1), pages 51-59.
    3. Na Hou & Bo Chen, 2013. "Military Expenditure And Economic Growth In Developing Countries: Evidence From System Gmm Estimates," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(3), pages 183-193, June.
    4. Christos Kollias & Nikolaos Mylonidis & Suzanna-Maria Paleologou, 2007. "A Panel Data Analysis Of The Nexus Between Defence Spending And Growth In The European Union: A Reply," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(6), pages 581-583.
    5. Christos Kollias & Nikolaos Mylonidis & Suzanna-Maria Paleologou, 2007. "A Panel Data Analysis Of The Nexus Between Defence Spending And Growth In The European Union," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(1), pages 75-85.
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