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Does Military Spending Explode External Debt in Pakistan?

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

Abstract

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.

Suggested Citation

  • Shahbaz, Muhammad & Shabbir, Shahbaz Muhammad & Butt, Muhammad Sabihuddin, 2011. "Does Military Spending Explode External Debt in Pakistan?," MPRA Paper 30429, University Library of Munich, Germany, revised 21 Apr 2011.
  • Handle: RePEc:pra:mprapa:30429
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    Cited by:

    1. 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.
    2. 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).
    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. 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.
    6. 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.
    7. 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.

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    More about this item

    Keywords

    Military Spending; External Debt; Cointegration;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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