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Does Military Spending Explode External Debt in Pakistan?

  • Shahbaz, Muhammad
  • Shabbir, Shahbaz Muhammad
  • Butt, Muhammad Sabihuddin

This paper explores the effect of military expenditures on external debt in case of Pakistan over the period of 1973-2009. For this purpose, ARDL bounds testing approach is used to examine cointegration between the variables. ADF, P-P and ADF-GLS, Clemente et al. (1998) unit root tests are applied to check the order of integration of variables. OLS and ECM regressions approaches are employed to investigate marginal impact of military spending on external debt in long and short run. Our findings indicate cointegration which confirms long run relationship between military expenditures, external debt, economic growth and investment. The results reveal that a rise in military expenditures increases the stock of external debt. The inverse effect of economic growth on external debt is found and an increase in investment is also increasing external debt in the country. This study invites policy makers to approach the problem of curtailing external debt in innovative ways in case of Pakistan.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30429.

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Date of creation: 28 Feb 2011
Date of revision: 21 Apr 2011
Handle: RePEc:pra:mprapa:30429
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