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Does Defence Spending Impede Economic Growth? Cointegration And Causality Analysis For Pakistan

Listed author(s):
  • Muhammad Shahbaz
  • Talat Afza
  • Muhammad Shahbaz Shabbir

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

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File URL: http://hdl.handle.net/10.1080/10242694.2012.723159
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Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

Volume (Year): 24 (2013)
Issue (Month): 2 (April)
Pages: 105-120

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Handle: RePEc:taf:defpea:v:24:y:2013:i:2:p:105-120
DOI: 10.1080/10242694.2012.723159
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