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Military Expenditure, Economic Growth and Structural Instability: A Case Study of South Africa

Author

Listed:
  • Goodness C. Aye

    () (Department of Economics, University of Pretoria)

  • Mehmet Balcilar

    () (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • John P. Dunne

    () (School of Economics, University of Cape Town, Cape Town, South Africa)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Renee van Eyden

    () (Department of Economics, University of Pretoria)

Abstract

This paper makes two contributions to the growing literature on the military expenditureeconomic growth nexus. It provides a case study of a developing country, South Africa, and considers the possibilities of structural breaks in the relationship, applying newly developed econometric methods. Taking annual data from 1951 to 2010 and using full sample bootstrap Granger non-causality tests, no Granger causal link is found between military expenditure and GDP. Then, using parameter instability tests, the estimated VARs are found to be unstable and when a bootstrap rolling window estimation procedure is used to deal with time variation in the parameters, bidirectional Granger causality between the two series becomes evident in various subsamples. While military expenditure has positive predictive power for GDP at certain initial periods, it has negative predictive power at some later periods in the sample. Similar results were obtained for the causality running from GDP to military expenditure. These findings illustrate that conclusions based on the standard Granger non-causality tests, which neither account for structural breaks nor time variation in the relationship may be invalid.

Suggested Citation

  • Goodness C. Aye & Mehmet Balcilar & John P. Dunne & Rangan Gupta & Renee van Eyden, 2013. "Military Expenditure, Economic Growth and Structural Instability: A Case Study of South Africa," Working Papers 201344, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201344
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    Cited by:

    1. Mehmet Akif Destek, 2015. "Nuclear Energy Consumption and Economic Growth in G-6 Countries: Evidence from Bootstrap Rolling Window," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 759-764.
    2. Cosimo Magazzino & Lorenzo Giolli & Marco Mele, 2015. "Wagner’s Law and Peacock and Wiseman’s Displacement Effect in European Union Countries: A Panel Data Study," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 812-819.
    3. Phiri, Andrew, 2016. "Does military spending nonlinearly affect economic growth in South Africa?," MPRA Paper 69730, University Library of Munich, Germany.
    4. Mehmet Akif Destek & Ilyas Okumus, 2016. "Military Expenditure and Economic Growth in Brics and Mist Countries: Evidence from Bootstrap Panel Granger Causality Analysis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 14(2), pages 175-186.
    5. repec:eco:journ1:2017-03-42 is not listed on IDEAS
    6. repec:cmj:seapas:y:2018:i:16:p:97-106 is not listed on IDEAS
    7. Matthew W. Clance & Rangan Gupta & Mark E. Wohar, 2018. "Geopolitical Risks and Recessions in a Panel of Advanced Economies: Evidence from Over a Century of Data," Working Papers 201807, University of Pretoria, Department of Economics.
    8. Suna Korkmaz, 2015. "The Effect of Military Spending on Economic Growth and Unemployment in Mediterranean Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 273-280.
    9. Muhammad Azam & Faisal Khan & Khalid Zaman & Amran Md. Rasli, 2016. "Military Expenditures and Unemployment Nexus for Selected South Asian Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(3), pages 1103-1117, July.

    More about this item

    Keywords

    Military spending; Economic growth; Bootstrap; Time varying causality;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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