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Military spending as another cause of the failure of the PPP

  • Mohsen Bahmani-Oskooee
  • Gour Gobinda Goswami

In a recent article, with a strong theoretical argument but poor empirical support, military spending was identified to be a determinant of real exchange rate or a factor causing the PPP to deviate from equilibrium exchange rate. The poor empirical results were mostly due to a small number of observations (21 cross-sectional). This article employs pooled data from across 37 developing countries over the 1985-1998 period and provides very strong empirical support for the notion that indeed increased military spending could cause the PPP to deviate from equilibrium exchange rate.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 11 ()
Pages: 663-667

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:11:p:663-667
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  1. Bahmani-Oskooee, Mohsen & Nasir, Abm, 2002. "Corruption, Law and Order, Bureaucracy and Real Exchange RATE," Economic Development and Cultural Change, University of Chicago Press, vol. 50(4), pages 1021-28, July.
  2. Gupta, Sanjeev & de Mello, Luiz & Sharan, Raju, 2001. "Corruption and military spending," European Journal of Political Economy, Elsevier, vol. 17(4), pages 749-777, November.
  3. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
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