Do Political Instability and Military Expenditure Undermine Economic Growth in Egypt? Evidence from the ARDL Approach

Abstract

ABSTRACT Previous studies have investigated the relationship between political instability and economic growth separately from the relationship between military expenditure and economic growth. Besides, they did not cover the period after 2011 (i.e. the Arab Spring and its consequences). Therefore, this paper attempts to empirically analyze the long-run and short-run impacts of both political instability and military expenditure on economic growth in Egypt. We estimate the autoregressive distributed lag (ARDL) approach using data on the Egyptian economy over the period 1982–2018. For the robustness of our results, we use the fully modified ordinary least squares (FMOLS) estimator. Results of the ARDL approach indicate a significant negative relationship between political instability and economic growth in both the long-run and short-run. Contrarily, military expenditure has an insignificant impact on economic growth, especially in the long-run. These results are confirmed by the FMOLS estimator. Moreover, the estimated coefficient on the one-period lagged error correction term (ECTt-1) indicates that deviations from the long-run equilibrium relationship are corrected within a year.