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Causal link between military expenditure and GDP - A study of selected countries

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  • Das, Ramesh Chandra
  • Dinda, Soumyananda
  • Ray, Kamal

Abstract

There has been a great debate for long among the economists and political scientists on the issue of whether there has been any link or causations between GDP and military expenditure of a country. Professor Keynes does not believe on spending on military activities as it is wastage of resources, particularly when there is deficiency of aggregate consumption and investment demands in the economy. The present paper tries to examine whether there are causal link between GDP and military expenditure of randomly selected 20 countries in the world for the period 1988-2013. Applying the concerned time series econometric tools the study reveals that GDP causes military expenditure for seven countries including France, Germany and Italy and military expenditure causes GDP for five countries including USA, Canada, China and India. Bidirectional causalities are observed for Italy and Australia with no way causality observed in six countries including UK and Japan.

Suggested Citation

  • Das, Ramesh Chandra & Dinda, Soumyananda & Ray, Kamal, 2015. "Causal link between military expenditure and GDP - A study of selected countries," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 5(2), pages 114-126.
    • Handle: RePEc:gok:ijdcv1:v:5:y:2015:i:2:p:114-126
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    1. Peter Batchelor & J. Paul Dunne & David Saal, 2000. "Military spending and economic growth in South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 553-571.
    2. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    4. Faini, Riccardo & Annez, Patricia & Taylor, Lance, 1984. "Defense Spending, Economic Structure, and Growth: Evidence among Countries and Over Time," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 487-498, April.
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    Cited by:

    1. Ramesh Chandra Das & Amaresh Das & Kamal Ray, 2018. "Examining Forward and Backward Linkages between Public and Private Investments," Review of Market Integration, India Development Foundation, vol. 10(1), pages 45-75, April.

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