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Military spending as another cause of the failure of the PPP

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  • Mohsen Bahmani-Oskooee
  • Gour Gobinda Goswami

Abstract

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.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Gour Gobinda Goswami, 2005. "Military spending as another cause of the failure of the PPP," Applied Economics Letters, Taylor & Francis Journals, vol. 12(11), pages 663-667.
    • Handle: RePEc:taf:apeclt:v:12:y:2005:i:11:p:663-667
    DOI: 10.1080/13504850500188380
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    References listed on IDEAS

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    1. Lawrence H. Officer, 1976. "The Productivity Bias in Purchasing Power Parity: An Econometric Investigation (Le biais de la productivité dans la parité des pouvoirs d'achat: étude économétrique) (El sesgo de productividad en," IMF Staff Papers, Palgrave Macmillan, vol. 23(3), pages 545-579, November.
    2. Mr. Benedict J. Clements & Mr. Jerald A Schiff & Peter Debaere & Mr. Hamid R Davoodi, 1999. "Military Spending, the Peace Dividend, and Fiscal Adjustment," IMF Working Papers 1999/087, International Monetary Fund.
    3. Clague, Christopher, 1986. "Determinants of the National Price Level: Some Empirical Results," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 320-323, May.
    4. 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.
    5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    6. Edwards, Sebastian, 1988. "Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries," Journal of Development Economics, Elsevier, vol. 29(3), pages 311-341, November.
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    Cited by:

    1. Eric S. Lin & Hamid E. Ali, 2009. "Military Spending and Inequality: Panel Granger Causality Test," Journal of Peace Research, Peace Research Institute Oslo, vol. 46(5), pages 671-685, September.
    2. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2009. "Purchasing Power Parity In Less‐Developed And Transition Economies: A Review Paper," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 617-658, September.

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