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Does Defence Spending Stimulate Economic Growth in India?

  • Tiwari, Aviral
  • Shahbaz, Muhammad

The aim of present is to reinvestigate the effect of defence spending on economic growth using Zivot and Andrews (1992) and Lee and Strazicich, (2003) structural unit root tests and ARDL bounds testing approach to cointegration in augmented version of Keynesian model for Indian economy. Our analysis confirmed long run relationship between the variables and, results indicated positive effect of defence spending on economic growth (also negative impact after a threshold point). Investment and trade openness stimulate economic growth while economic growth is inversely affected by interest rate. Granger causality analysis showed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30880.

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Date of creation: 03 Jan 2011
Date of revision: 18 Apr 2011
Handle: RePEc:pra:mprapa:30880
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