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Military Expenditures and Economic Growth in Pakistan

  • Nasir M. Khilji

    (U.S. Bureau of the Census, and U.S./Saudi Arabian Joint Commission for Economic Cooperation, Riyadh, Saudi Arabia.)

  • Akhtar Mahmood

    (Government of Pakistan.)

Registered author(s):

    This paper explores the impacts of defence expenditures on economic growth and other major economic variables in the Pakistan economy over the period 1972-1995. The results of Granger-causality tests show that there is bi-directional feedback between the defence burden and GDP growth. We test four different single equation models that are widely used in the defence literature. In these frameworks we generally find the defence burden to be negatively related to GDP growth. Finally, we specify a three-equation model which explains GDP growth, average propensity to save, and the defence ratio. In single equation estimations of the savings ratio and the defence burden, we uncover some interesting relationships. The savings ratio is affected positively by the defence ratio, and negatively by the inflation rate. The Pakistani defence burden is impacted negatively by the Indian defence burden and positively by the government budget. When all three equations are estimated as a system to account for feedback and covariance between these equations, these effects are diminished and go down in statistical significance.

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    File URL: http://www.pide.org.pk/pdf/PDR/1997/Volume4/791-808.pdf
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    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 36 (1997)
    Issue (Month): 4 ()
    Pages: 791-808

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    Handle: RePEc:pid:journl:v:36:y:1997:i:4:p:791-808
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    1. Grossman, Herschel I., 1995. "Insurrections," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 8, pages 191-212 Elsevier.
    2. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
    3. Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Oxford University Press, vol. 1(1), pages 61-76, March.
    4. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
    5. Smith, R P, 1989. "Models of Military Expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(4), pages 345-59, Oct.-Dec..
    6. Nelson, Michael A & Singh, Ram D, 1994. "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 43(1), pages 167-91, October.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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