Impact of defence spending on economic growth in Africa: The Nigerian case

Abstract

This paper examines the relationship between defence burden and real gross domestic products in Nigeria, using annual time series data. This study uses Johansen’s Cointegration approach to investigate the relationship between government’s military expenditure (defence burden) and real gross domestic products, among other variables. In light of the lingering controversy on military expenditure and growth nexus, this paper contributes to the existing literature using time-series data from Nigeria, a country with high military spending over the years to re-investigate the impact of military expenditures on economic growth and the direction of causality between military spending and economic growth. Specifically, this study discusses the long run relationship between military expenditure and economic growth using Johansen cointegration approach. The key variables used in the study include: military burden (military expenditure), real GDP, real education expenditure, real health expenditure. The nature of the relationship that exists between military expenditure and economic growth as well as the cointegrating vector, taking into cognizance all other variables is focus of this paper. The results of the study show that increased defence burden is harmful to the Nigerian economy, and there exists a negative long-run relationship between defence burden and increase in the growth of real gross domestic products, the impact of defence burden remains negative both in the short-run and long-run respectively. It is not sufficient to have cuts in military expenditure, but such reallocation from defence should be directed towards productive investment in other sectors of the economy in order to generate economic prosperity and enhance the welfare of the citizens. Implications of having a negative effect of defence burden on growth rate of real Gross Domestic Products result in crowding-out of private sector investment, retards economic progress or growth rate of real gross domestic products, and therefore, is an ineffective tool to stimulate the growth of the economy in Nigeria. Military expenditure cannot be an effective tool of fiscal policy (government revenue and expenditure to regulate the economy), from the results of the study both short-run and long-run impact are negative, hence, the role of military sector should be limited to the maintenance of internal law and order as well as the defence of the country against any form of external aggression. This study will be of immense significance towards shaping policies that relate to military spending in Nigeria.