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

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

Abstract

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.

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  • Shahbaz, Muhammad & Afza, Talat & Shabbir, Shahbaz Muhammad, 2011. "Does defence spending impede economic growth? cointegration and causality analysis for Pakistan," MPRA Paper 30887, University Library of Munich, Germany, revised 27 Mar 2011.
    • Handle: RePEc:pra:mprapa:30887
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    Keywords

    Defence Spending; Economic Growth; Cointegration; Causality; Pakistan;
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    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics

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