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Further Evidence on Defence Spending and Economic Growth in NATO Countries


  • Alper Ozun

    () (Bradford University, School of Management, UK)

  • Erman Erbaykal

    (Istanbul University, Department of Economics, Turkey)


The main purpose of this paper is to analyze the causal relationships between defence spending and economic growth using the Toda–Yamamoto approach to Granger causality test in the case of selected NATO countries for the period of 1949-2006. NATO countries spend biggest proportion of defence spending in the world. Granger causality test on defence-growth issue employed by number of scholars but this paper is firstly used Toda–Yamamoto approach to granger causality to analyze relationship between defence spending and growth. The results show that unidirectional causality exists in seven NATO countries while for five countries no causal relationships were found. On the other hand, Turkey differs from other countries in that the relationship is bilateral.

Suggested Citation

  • Alper Ozun & Erman Erbaykal, 2011. "Further Evidence on Defence Spending and Economic Growth in NATO Countries," Koç University-TUSIAD Economic Research Forum Working Papers 1119, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1119

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    References listed on IDEAS

    1. Artuç, Erhan & Demiralp, Selva, 2010. "Discount window borrowing after 2003: The explicit reduction in implicit costs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 825-833, April.
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    More about this item


    defence spending; Turkish economy; Granger causality; NATO; economic growth; Toda–Yamamoto approach;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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