Defense Expenditures And Inflation Relationship: 1990-2018 NATO Countries Case

Abstract

Although it is seen in the literature that defense expenditures are associated with various macroeconomic variables, it can be foreseen that there is no consensus on the relationship between defense expenditures and inflation. The aim of this study is to investigate the relationship between defense spending and inflation in NATO countries for the period 1990-2018. For this purpose, horizontal cross-sectional dependence test was examined by the bootstrap panel causality analysis developed by Konya (2006) following the heterogeneity tests of Pesaran and Yamagata (2008). The analysis results indicate that there is a one-way causality relationship from inflation to defense spending in the United States, Czech Republic, Estonia, Croatia, England and Latvia.