Abstract
Prior literature includes vast discussion of sequential (Granger type) causality between GDP growth and military spending. Such causal relationship implies that reaction of one would come year(s) after the other. This may be true for longer term interactions (i.e. spin-off effect). However, economic interactions (i.e. crowding effect) would be expected much sooner, within the same year. Thus, complete causal analysis would require evaluation of instantaneous (Geweke type) causality (same year) in addition to sequential causality. Using common GDP model that includes military spending, this study provides evidence for the instantaneous as well as sequential causal relationship between GDP growth and military spending across 125 countries for the period between 1988 and 2009.
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