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Linkages between defense spending and income inequality in Iran

Listed author(s):
  • Muhammad Shahbaz

    ()

    (COMSATS Institute of Information Technology)

  • Reza Sherafatian-Jahromi

    ()

    (University Putra Malaysia (UPM))

  • Muhammad Nasir Malik

    ()

    (University of Central Punjab)

  • Muhammad Shahbaz Shabbir

    (University of Illinois at Urbana-Champaign)

  • Farooq Ahmed Jam

    ()

    (University of Malaya)

Abstract This paper contributes in economic literature by investigating the impact of defense spending on income inequality in case of Iran using time series data over the period of 1971–2011. For this purpose, we have applied the ARDL bounds testing approach to cointegration for long run relationship in the presence of structural breaks arising in the series. The stationarity properties of the variables are tested using structural break unit root tests. The causal relationship between defense spending and income inequality is examined by employing the VECM Granger causality approach. Our findings validate the long run relationship between the series. The results indicate that defense spending improves income distribution in Iran. An inverted-U shaped relationship exists between defense spending and income inequality while economic growth reduces income inequality. The causality analysis reveals that defense spending Granger causes income inequality and feedback effect exists between income inequality and economic growth.

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File URL: http://link.springer.com/10.1007/s11135-015-0207-z
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Article provided by Springer in its journal Quality & Quantity.

Volume (Year): 50 (2016)
Issue (Month): 3 (May)
Pages: 1317-1332

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Handle: RePEc:spr:qualqt:v:50:y:2016:i:3:d:10.1007_s11135-015-0207-z
DOI: 10.1007/s11135-015-0207-z
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Order Information: Web: http://www.springer.com/economics/journal/11135

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