Does military spending really support economic growth in small island countries? a comparative study of five small island countries

We investigate the long-run and short-run relationship between military spending and economic growth, using the augmented Solow framework for five small island countries. We apply Pesaran, et al’s ARDL bounds procedure and the Toda and Yamamoto’s Granger non-causality procedure, respectively. Structural break is identified from the Bai and Perron’s multiple break test. A positive contribution of capital per worker is noted for all five countries. We note that military expenditure is positive and significant in both the long and short run for Mauritius only, whereas for smaller countries like Fiji and Seychelles, the association is positive in the long run only. For the Dominican Republic, military expenditure is positive but not significant in the short-run, and there is a significant negative association in the long-run, indicating a growth-retarding effect. For Singapore, the coefficient of military expenditure per worker is positive but not statistically significant. Furthermore, capital stock causes military expenditure for the Dominican Republic, Fiji, and Mauritius, reverse causality is noted for Seychelles, and a bidirectional causality between the two is noted for Singapore. Capital causes output for Fiji and Mauritius, and a reverse causality is noted for Singapore. For Mauritius, military expenditure and output are mutually reinforcing each other.