IDEAS home Printed from
   My bibliography  Save this article

Defence spending, economic growth and temporal causality: evidence from Taiwan and mainland China, 1952-1995


  • Tsangyao Chang
  • Wenshwo Fang
  • Li-Fang Wen
  • Chwenchi Liu


This paper uses a cointegration analysis and a vector autoregressive model (VAR) to examine the causal relationship between defence spending and economic growth for Taiwan and Mainland China over the period 1952-1995. It is found that these two variables are not cointegrated for both countries studied. The results of the Granger causality tests suggest bidirectional Granger causality (feedback) between defence spending and economic growth for Taiwan, unidirectional Granger causality running from economic growth to defence spending for Mainland China, and unidirectional Granger causality running from Taiwan's defence spending to Mainland China's defence spending for cross-country studied. These results further indicate that there exists no arms race between two countries from both sides of Taiwan strait. Furthermore, impulse responses and variance decompositions are incorporated into the analysis. The results from the impulse responses and variance decompositions tell a similar story.

Suggested Citation

  • Tsangyao Chang & Wenshwo Fang & Li-Fang Wen & Chwenchi Liu, 2001. "Defence spending, economic growth and temporal causality: evidence from Taiwan and mainland China, 1952-1995," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1289-1299.
  • Handle: RePEc:taf:applec:v:33:y:2001:i:10:p:1289-1299
    DOI: 10.1080/00036840122529

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
    2. Hajivassiliou, V A, 1994. "A Simulation Estimation Analysis of the External Debt Crises of Developing Countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(2), pages 109-131, April-Jun.
    3. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    4. Borsch-Supan, Axel & Hajivassiliou, Vassilis A., 1993. "Smooth unbiased multivariate probability simulators for maximum likelihood estimation of limited dependent variable models," Journal of Econometrics, Elsevier, vol. 58(3), pages 347-368, August.
    5. V A Hajivassiliou, 1997. "Some Practical Issues in Maximum Simulated Likelihood," STICERD - Econometrics Paper Series 340, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Lee, Lung-Fei & Pitt, Mark M, 1986. "Microeconometric Demand Systems with Binding Nonnegativity Constraints: The Dual Approach," Econometrica, Econometric Society, vol. 54(5), pages 1237-1242, September.
    7. Hajivassiliou, Vassilis & McFadden, Daniel & Ruud, Paul, 1996. "Simulation of multivariate normal rectangle probabilities and their derivatives theoretical and computational results," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 85-134.
    8. Stern, Steven, 1992. "A Method for Smoothing Simulated Moments of Discrete Probabilities in Multinomial Probit Models," Econometrica, Econometric Society, vol. 60(4), pages 943-952, July.
    9. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
    10. Lee, Lung-Fei & Pitt, Mark M., 1984. "Microeconometric Models of Consumer and Producer Demand with Limited Dependent Variables," Bulletins 7495, University of Minnesota, Economic Development Center.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Tsangyao Chang & Chien-Chiang Lee & Hsiao-Ping Chu, 2015. "Revisiting the Defense-Growth nexus in European countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(3), pages 341-356, June.
    2. Ourania Dimitraki & Faek Menla Ali, 2015. "The Long-run Causal Relationship Between Military Expenditure and Economic Growth in China: Revisited," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(3), pages 311-326, June.
    3. Chien-Chiang Lee & Sheng-Tung Chen, 2007. "Non-Linearity In The Defence Expenditure - Economic Growth Relationship In Taiwan," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(6), pages 537-555.
    4. Christos Kollias & Suzanna-Maria Paleologou, 2010. "Growth, investment and military expenditure in the European Union-15," Journal of Economic Studies, Emerald Group Publishing, vol. 37(2), pages 228-240, May.
    5. Ming Zhong & Tsangyao Chang & Samrat Goswami & Rangan Gupta, 2014. "The Nexus between Military Expenditures and Economic Growth in the BRICS and the US: A Bootstrap Panel Causality Test," Working Papers 201449, University of Pretoria, Department of Economics.
    6. Henryk Gurgul & Łukasz Lach & Roland Mestel, 2012. "The relationship between budgetary expenditure and economic growth in Poland," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 20(1), pages 161-182, March.
    7. Gurgul, Henryk & Lach, Łukasz, 2011. "Causality analysis between public expenditure and economic growth of Polish economy in last decade," MPRA Paper 52281, University Library of Munich, Germany.
    8. Chen, Pei-Fen & Lee, Chien-Chiang & Chiu, Yi-Bin, 2014. "The nexus between defense expenditure and economic growth: New global evidence," Economic Modelling, Elsevier, vol. 36(C), pages 474-483.
    9. repec:taf:defpea:v:28:y:2017:i:6:p:703-718 is not listed on IDEAS

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:33:y:2001:i:10:p:1289-1299. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.