Military spending and growth: the post-covid-19 new normal in Jordan

Abstract

Purpose - COVID-19 has forced governments to implement fiscal policy measures that will widen budget deficits in many countries. Economies with limited public revenues or limited fiscal space, like Jordan, will probably suffer more, and probably for years to come. The expected deterioration in the status of public finance will force the government in Jordan to make difficult choices in the re-allocation of its budgetary resources. Within this context, the fact that Jordan has always been a relatively big spender on the military, the pandemic might lead to some decrease in this spending item. This is why the objective of this paper examines the impact of military spending on economic growth in Jordan. Methodology – To examine the nexus between military spending and economic growth, this paper uses annual data that covers the period 1980 – 2019. The variables used in the analysis are real Gross Domestic Product (GDP), real military spending, and real bank credit to the private sector. As for the methodology, time series techniques are used and these include stationarity tests, co-integration and the long run relationship. Findings – The impact of military spending on real economic growth is negative. The impact of bank credit to the private sector, on the other hand, is positive and significant. In addition, the results indicate that that bank credit to the private sector reflects increasing importance in explaining the variability in real economic growth over time. Conclusion - The fact that military spending is relatively high, and its impact on growth is negative, policy makers might be tempted to shift financial resources from this sector to other such as health and education. However, such a decision would not be easy given the fact that Jordan is located in a politically and security unstable environment. After all, military spending the lack of security can be a major impediment to growth and development.