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Do Defence Expenditures Spur Gdp? A Panel Analysis From Oecd And Non-Oecd Countries

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  • Chien-Chiang Lee
  • Sheng-Tung Chen

Abstract

This paper empirically re-examines the long-run co-movements and the causal relationships between GDP and defence expenditures in a multivariate model with real defence expenditure per capita (ME), real GDP per capita (GDP), and real capital stock per capita (K). We apply the view of the aggregate production function to construct the empirical model. Using up-to-date data for 27 OECD countries and 62 non-OECD countries for the 1988-2003 period, we combine cross-sectional and time series data to re-investigate the relationship between GDP and ME. Previous studies using time series data may have yielded misleading results on account of the short time span of typical datasets. By contrast, we use recently developed panel unit root tests and heterogeneous panel cointegration tests, and conclude that there is fairly strong evidence in favour of the hypothesis of a long-run equilibrium relationship between GDP and ME. The long-run panel regression parameter results, such as the fully modified OLS, indicate that a positive relationship between GDP and ME only holds for OECD countries, whereas a negative relationship from ME to GDP only exists in non-OECD countries under examination and in the panel as a whole. Furthermore, by implementing the dynamic panel-based error correction model, we determine that GDP and ME lack short-run causalities, but do show long-run bidirectional causalities in both OECD and non-OECD countries.

Suggested Citation

  • Chien-Chiang Lee & Sheng-Tung Chen, 2007. "Do Defence Expenditures Spur Gdp? A Panel Analysis From Oecd And Non-Oecd Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(3), pages 265-280.
  • Handle: RePEc:taf:defpea:v:18:y:2007:i:3:p:265-280
    DOI: 10.1080/10242690500452706
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    Citations

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    Cited by:

    1. repec:spr:scient:v:94:y:2013:i:1:d:10.1007_s11192-012-0857-8 is not listed on IDEAS
    2. 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.
    3. repec:ebl:ecbull:eb-18-00163 is not listed on IDEAS
    4. Hsien-Hung Kung & Jennifer C. H. Min, 2013. "Military Spending and Economic Growth Nexus in Sixteen Latin and South American Countries: A Bootstrap Panel Causality Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 171-185, December.
    5. 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.
    6. Shahbaz, Muhammad & Khraief, Naceur & Kumar Mahalik, Mantu & Khan, Saleheen, 2018. "Military Spending Response to Defense Shocks? International Evidence," MPRA Paper 87362, University Library of Munich, Germany, revised 12 Jun 2018.
    7. Hou Na & Chen Bo, 2014. "Military Spending and Economic Growth in An Augmented Solow Model: A Panel Data Investigation for OECD Countries," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(3), pages 1-15, August.
    8. Cosimo Magazzino & Lorenzo Giolli & Marco Mele, 2015. "Wagner’s Law and Peacock and Wiseman’s Displacement Effect in European Union Countries: A Panel Data Study," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 812-819.
    9. Suna Korkmaz, 2015. "The Effect of Military Spending on Economic Growth and Unemployment in Mediterranean Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 273-280.
    10. Mehmet Akif Destek & Ilyas Okumus, 2016. "Military Expenditure and Economic Growth in Brics and Mist Countries: Evidence from Bootstrap Panel Granger Causality Analysis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 14(2), pages 175-186.
    11. Christos Kollias & Suzanna-Maria Paleologou, 2011. "The Macroeconomic Effects of Conflict: Three Case Studies," Chapters,in: Handbook on the Economics of Conflict, chapter 14 Edward Elgar Publishing.
    12. Muhammad Shahbaz & Talat Afza & Muhammad Shahbaz Shabbir, 2013. "Does Defence Spending Impede Economic Growth? Cointegration And Causality Analysis For Pakistan," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(2), pages 105-120, April.
    13. 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.
    14. 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.
    15. Manuel Acosta & Daniel Coronado & Rosario Marin, 2011. "Potential Dual-Use Of Military Technology: Does Citing Patents Shed Light On This Process?," Defence and Peace Economics, Taylor & Francis Journals, vol. 22(3), pages 335-349.

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