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Does Military Spending Explode External Debt in Pakistan?

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  • Muhammad Shahbaz
  • Muhammad shahbaz Shabbir
  • Muhammad sabihuddin Butt

Abstract

This paper investigates the effect of military spending on external debt in case of Pakistan for the period of 1973–2009. For this purpose, the autoregressive distributed lag bounds testing approach to cointegration is used to examine cointegration among the variables. The ADF, P-P, and ADF-GLS unit root tests are applied to test the integrating order of the variables. The Ordinary Least Square (OLS) and error correction method regressions are used to investigate the marginal impact of military spending on external debt in the long and short run. Our findings indicate the existence of cointegration that confirms the presence of a long-run relationship among military spending, external debt, economic growth, and investment. Further, our results reveal that a rise in military spending increases the stock of external debt; an increase in investment also increases external debt; however, there is an inverse effect of economic growth on external debt. An implication of the findings reported herein is that there is a need to formulate a comprehensive economic policy for curtailing external debt in case of Pakistan.

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  • Muhammad Shahbaz & Muhammad shahbaz Shabbir & Muhammad sabihuddin Butt, 2016. "Does Military Spending Explode External Debt in Pakistan?," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(5), pages 718-741, September.
  • Handle: RePEc:taf:defpea:v:27:y:2016:i:5:p:718-741
    DOI: 10.1080/10242694.2012.724878
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    Cited by:

    1. Serkan Künü & Sertaç Hopoðlu & Gürkan Bozma, 2016. "Conflict, Defense Spending and Economic Growth in the Middle East: A Panel Data Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 80-86.
    2. Muhammad Shahbaz & Naceur Khraief & Mantu Kumar Mahalik & Saleheen Khan, 2018. "Are Fluctuations in Military Spending Transitory or Permanent? International Evidence," Economics Bulletin, AccessEcon, vol. 38(2), pages 1198-1212.
    3. Özcan KARAHAN & Olcay ÇOLAK, 2019. "The link between financial capital movements and the exchange rate in Turkey," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 10, pages 263-281, December.
    4. Zhang, Xiaoyan & Chang, Tsangyao & Su, Chi-Wei & Wolde-Rufael, Yemane, 2016. "Revisit causal nexus between military spending and debt: A panel causality test," Economic Modelling, Elsevier, vol. 52(PB), pages 939-944.
    5. Ullah, Assad & Zhao, Xinshun & Kamal, Muhammad Abdul & Zheng, JiaJia, 2020. "Modeling the relationship between military spending and stock market development (a) symmetrically in China: An empirical analysis via the NARDL approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    6. Kadir KARAGÖZ, 2018. "Impact of defence expenditures on external debt: An econometric analysis for Turkey and Turkic Republics," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(614), S), pages 183-192, Spring.
    7. Eftychia Nikolaidou, 2016. "The role of military expenditure and arms imports in the Greek debt crisis," Economics of Peace and Security Journal, EPS Publishing, vol. 11(1), pages 18-27, April.

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