Abstract
The causal relationship between defence expenditures and external debt is investigated by applying a multivariate model. Our estimation results indicate that defence expenditures and external debt for Turkey are cointegrated. To test for Granger causality in the presence of cointegration between variables, we employ a vector error correction model. Empirical results for Turkey over the period 1955–2000 suggest a long run and short run unidirectional causality running from defence expenditures to external debt but not vice versa.
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