Does the Optimal Size of Defense Expenditure Exist? An Empirical Study on Turkey

Abstract

The purpose of this study was to analyze whether an “inverted U” shape
 relationship between economic growth and defense expenditure or not, what the
 optimal ratio of defense expenditure for Turkey is, and whether Turkey’s
 defense expenditure in the period of 1990-2017 was optimal. The dependent
 variable of the study was the ratio of yearly economic growth, and independent
 variables were the ratio of defense expenditure in GDP and yearly unemployment
 rate respectively. Data which covered 1990-2017 period regarding Turkey was
 analyzed by using Time Series Analysis with FMOLS method. Economic growth and
 unemployment series were acquired from the Worldbank, while defense expenditure
 was from SIPRI data bank. According to the results; we have concluded that there
 is an “inverted U” shape the relationship between economic growth and defense
 expenditure. In other words, Armey Curve exists for Turkey. Also, we have
 observed the ratio of defense expenditure as 2.5% of the GDP. The defense
 expenditure of Turkey from 2010 is under this value of 2.5%. Considering this
 point; it can be put forward that Turkey may increase its defense expenditure
 up to 2.5% of the GDP to provide economic growth. Taking into account of the
 leading position and also the importance of the defense industry in the
 manufacturing industry, this evaluation is supported not only with the first
 law of Kaldor but also studies which propose that defense expenditure has
 positive effects on the economic growth as well.