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The Impact of Defense Investment on Economic Growth in the Perspective of Time Series: A Case Study of China

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  • Bin Pan

    (Academy of Finance Research, Wenzhou University, Zhejiang, China)

  • Shih-Yung Wei

    (Academy of Finance Research, Wenzhou University, Zhejiang, China)

  • Xuanhua Xu

    (School of Business, Central South University, Changsha, China)

  • Wei-Chiang Hong

    (Department of Information Management, Oriental Institute of Technology, New Taipei, Taiwan)

Abstract

By considering the demand and supply effects of defense investment and the uncertainty of the stochastic process of the production and defense investment, this study proposes a stochastic endogenous growth model to explore the impact of defense investment on economic growth. The results suggest that the relationship between defense investment and economic growth rate is nonlinear and obtains the optimal percentage of defense investment to maximize economic growth. Moreover, the impact of defense investment volatility on economic growth rate is subject to production and defense investment interference term's covariance and representative private investment risk preference. Finally, the empirical data are used to illustrate the applicability of the proposed model.

Suggested Citation

  • Bin Pan & Shih-Yung Wei & Xuanhua Xu & Wei-Chiang Hong, 2014. "The Impact of Defense Investment on Economic Growth in the Perspective of Time Series: A Case Study of China," International Journal of Applied Evolutionary Computation (IJAEC), IGI Global, vol. 5(4), pages 44-58, October.
    • Handle: RePEc:igg:jaec00:v:5:y:2014:i:4:p:44-58
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