IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Does defence spending impede economic growth? cointegration and causality analysis for Pakistan

  • Shahbaz, Muhammad
  • Afza, Talat
  • Shabbir, Shahbaz Muhammad

This study revisits the relationship between defence spending and economic growth using Keynesian model in Pakistan by applying ARDL bounds testing approach to cointegration for long run and error correction method for short span of time. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending retards the pace of economic growth confirming the validation of Keynesian hypothesis in the country. Current economic growth is positively linked with economic growth in previous period while rise in nonmilitary expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/30887/1/MPRA_paper_30887.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30887.

as
in new window

Length:
Date of creation: 26 Jan 2011
Date of revision: 27 Mar 2011
Handle: RePEc:pra:mprapa:30887
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  2. Rizwan Tahir, 1995. "Defence Spending and Economic Growth: Re-examining the Issue of Causality for Pakistan and India," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 1109-1117.
  3. Lim, David, 1983. "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 31(2), pages 377-84, January.
  4. Jes�s Crespo Cuaresma & Gerhard Reitschuler, 2004. "A non-linear defence-growth nexus? evidence from the US economy," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 71-82, February.
  5. Keller, Katarina & Poutvaara, Panu & Wagener, Andreas, 2009. "Military draft and economic growth in oecd countries," Munich Reprints in Economics 19477, University of Munich, Department of Economics.
  6. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
  7. Benoit, Emile, 1978. "Growth and Defense in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 26(2), pages 271-80, January.
  8. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
  9. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
  10. Selami Sezgin, 2001. "An empirical analysis of turkey's defence-growth relationships with a multi-equation model (1956-1994)," Defence and Peace Economics, Taylor & Francis Journals, vol. 12(1), pages 69-86.
  11. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers 1221, Cowles Foundation for Research in Economics, Yale University.
  12. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  13. Halicioglu Ferda, 2005. "An Econometric Analysis Of The Effects Of Aggregate Defense Spending On Aggregate Output: The Case Of Turkey, 1950-2002," Macroeconomics 0503009, EconWPA.
  14. Chor Foon Tang, 2008. "Defence Expenditure and Economic Growth in Malaysia: A Reassessment Using Bounds and Modified Wald Tests," The IUP Journal of Public Finance, IUP Publications, vol. 0(2), pages 45-51, May.
  15. Mete Feridun & Muhammad Shahbaz, 2010. "Fighting Terrorism: Are Military Measures Effective? Empirical Evidence From Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(2), pages 193-205.
  16. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
  17. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  18. Luca Pieroni, 2009. "Military Expenditure And Economic Growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(4), pages 327-339.
  19. H. Sonmez Atesoglu, 2002. "Defense Spending Promotes Aggregate Output in the United States--Evidence from Cointegration Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(1), pages 55-60.
  20. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  21. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  22. Brauer, Jurgen, 2007. "Arms Industries, Arms Trade, and Developing Countries," Handbook of Defense Economics, Elsevier.
  23. Abu-Bader, Suleiman & Abu-Qarn, Aamer S., 2003. "Government expenditures, military spending and economic growth: causality evidence from Egypt, Israel, and Syria," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 567-583, September.
  24. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
  25. Christos Kollias & Nikolaos Mylonidis & Suzanna-Maria Paleologou, 2007. "A Panel Data Analysis Of The Nexus Between Defence Spending And Growth In The European Union," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(1), pages 75-85.
  26. John B. Taylor, 2000. "Teaching Modern Macroeconomics at the Principles Level," American Economic Review, American Economic Association, vol. 90(2), pages 90-94, May.
  27. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  28. Halicioglu Ferda, 2004. "Defense Spending and Economic Growth in Turkey: An Empirical Application of New Macroeconomic Theory," Review of Middle East Economics and Finance, De Gruyter, vol. 2(3), pages 34-43, December.
  29. Peter Batchelor & J. Paul Dunne & David Saal, 2000. "Military spending and economic growth in South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 553-571.
  30. Deger, Saadet, 1986. "Economic Development and Defense Expenditure," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 179-96, October.
  31. JP Dunne & E Nikolaidou & R Smith, 2002. "Military Spending, Investment And Economic Growth In Small Industrialising Economies," South African Journal of Economics, Economic Society of South Africa, vol. 70(5), pages 789-790, 06.
  32. Jeffrey Smith & M. H. Tuttle, 2008. "Does Defense Spending Really Promote Aggregate Output In The United States?," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(6), pages 435-447.
  33. Faini, Riccardo & Annez, Patricia & Taylor, Lance, 1984. "Defense Spending, Economic Structure, and Growth: Evidence among Countries and Over Time," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 487-98, April.
  34. Erdal Karagol & Serap Palaz, 2004. "Does defence expenditure deter economic growth in Turkey? A cointegration analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(3), pages 289-298.
  35. Ram, Rati, 1995. "Defense expenditure and economic growth," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 10, pages 251-274 Elsevier.
  36. Albert Wijeweera & Matthew Webb, 2009. "Military Spending And Economic Growth In Sri Lanka: A Time Series Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(6), pages 499-508.
  37. Bazoumana Ouattara, 2006. "Aid, debt and fiscal policies in Senegal," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(8), pages 1105-1122.
  38. Dakurah, A. Henry & Davies, Stephen P. & Sampath, Rajan K., 2001. "Defense spending and economic growth in developing countries: A causality analysis," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 651-658, August.
  39. Rangan Gupta & Alain Kabundi & Emmanuel Ziramba, 2010. "The Effect Of Defense Spending On Us Output: A Factor Augmented Vector Autoregression (Favar) Approach," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(2), pages 135-147.
  40. Chien-Chiang Lee & Sheng-Tung Chen, 2007. "Do Defence Expenditures Spur Gdp? A Panel Analysis From Oecd And Non-Oecd Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(3), pages 265-280.
  41. Ã…dne Cappelen & Nils Petter Gleditsch & Olav Bjerkholt, 1984. "Military Spending and Economic Growth in the OECD Countries," Journal of Peace Research, Peace Research Institute Oslo, vol. 21(4), pages 361-373, December.
  42. Julide Yildirim & Selami Sezgin & Nadir Ocal, 2005. "Military Expenditure And Economic Growth In Middle Eastern Countries: A Dynamic Panel Data Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(4), pages 283-295.
  43. H. Sonmez Atesoglu, 2009. "Defense Spending And Aggregate Output In The United States," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(1), pages 21-26.
  44. Erdal Karagol, 2006. "The Relationship Between External Debt, Defence Expenditures And Gnp Revisited: The Case Of Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(1), pages 47-57.
  45. Julide Yildirim & Nadir Ocal, 2006. "Arms Race And Economic Growth: The Case Of India And Pakistan," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(1), pages 37-45.
  46. Gupta, Sanjeev & Clements, Benedict & Bhattacharya, Rina & Chakravarti, Shamit, 2004. "Fiscal consequences of armed conflict and terrorism in low- and middle-income countries," European Journal of Political Economy, Elsevier, vol. 20(2), pages 403-421, June.
  47. Nikolaos Mylonidis, 2008. "Revisiting The Nexus Between Military Spending And Growth In The European Union," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(4), pages 265-272.
  48. Muhammad Shahbaz, 2010. "Income inequality-economic growth and non-linearity: a case of Pakistan," International Journal of Social Economics, Emerald Group Publishing, vol. 37(8), pages 613-636, July.
  49. Ram, Rati, 1986. "Government Size and Economic Growth: A New Framework and Some Evidencefrom Cross-Section and Time-Series Data," American Economic Review, American Economic Association, vol. 76(1), pages 191-203, March.
  50. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  51. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  52. J Paul Dunne & Mehmet Uye, 2009. "Military Spending and Development," Working Papers 0902, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  53. Aamer Abu-qarn, 2010. "The Defence-Growth Nexus Revisited: Evidence From The Israeli-Arab Conflict," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(4), pages 291-300.
  54. Paul Dunne & Eftychia Nikolaidou & Dimitrios Vougas, 2001. "Defence spending and economic growth: A causal analysis for Greece and Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 12(1), pages 5-26.
  55. Bhargava, Alok, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 369-84, July.
  56. Macri, Joseph & Sinha, Dipendra, 2007. "Does Black’s Hypothesis for Output Variability Hold for Mexico?," MPRA Paper 4021, University Library of Munich, Germany.
  57. Nasir M. Khilji & Akhtar Mahmood, 1997. "Military Expenditures and Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(4), pages 791-808.
  58. Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Oxford University Press, vol. 1(1), pages 61-76, March.
  59. Selami Sezgin, 1997. "Country survey X: Defence spending in Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 8(4), pages 381-409.
  60. Paresh Kumar Narayan & Baljeet Singh, 2007. "Modelling The Relationship Between Defense Spending And Economic Growth For The Fiji Islands," Defence and Peace Economics, Taylor & Francis Journals, vol. 18(4), pages 391-401.
  61. Christos Kollias, 1995. "Preliminary findings on the economic effects of Greek military expenditure," Applied Economics Letters, Taylor & Francis Journals, vol. 2(1), pages 16-18.
  62. Biswas, Basudeb & Ram, Rati, 1986. "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 361-72, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:30887. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.