Abstract
Military spending and sustainable economic development have been widely discussed in recent decades. Especially in Romania, the defense budget is valued at $4.8 billion, registering a compound annual growth rate (CAGR) of 23.57%. It is also expected to reach $7.6 billion in 2023, according to a report by Strategic Defense Intelligence. There is no consensus in current research and less attention is paid to Eastern European countries. Considering the significant increase in military spending in Romania in recent years, as well as the occurrence of political events, this paper focuses on the dynamic causal relationship between military spending and sustainable economic growth in Romania. The bootstrap rolling window causality test takes into account the structural changes, and therefore, provides more convincing results. The results indicate negative effects of military expenditure on sustainable economic growth between 1996–1999 and 2002–2004. It can be attributed to the crowding-out effect of public expenditure on private investment. The positive effect between the two variables analyzed is noticed with the accession of Romania to the North Atlantic Treaty Organization. Conversely, it is found that economic growth does not have a significant effect on military spending in Romania. Policymakers should guard against the crowding out of private consumption and investment due to excessive military spending and ensure to increase military expenditure on the premise of sustainable economic development.
Highlights
Considered to be one of the most important budget expenditures, military expenditure (ME) has played a significant role in macroeconomics over time
Daddi [27] investigate the impact of ME on gross domestic product (GDP) in Italy, the results showed that there is a military burden that has significant effects on GDP, promoting “peacekeeping” productivity and humanitarian missions that reduce insecurity from the external threat and implicitly of the investments and the jobs
In the period of domestic turmoil and participation in North Atlantic Treaty Organization (NATO), rising ME contributes to stabilize the domestic environment and stimulate the sustainable development of the economy. This finding is in accordance with the Dunne et al [11], who propose that the positive effect of ME on GDP is significant in less investment and consume, which is harmful to GDP
Summary
Considered to be one of the most important budget expenditures, military expenditure (ME) has played a significant role in macroeconomics over time. The “guns for butter” theory points out that the increased ME results in lower resource allocation in other productive economic sectors, such as education and healthcare, and hinders sustainable development From this perspective, the allocation of budget expenditure has raised serious concerns among researchers and decision-makers, considering the role of military spending in sustainable economic growth. Romania is a major member of important CSDP structures: The EU Satellite Center in Torrejon (Spain), the European Security Studies Institute in Paris (France) or the EDA European Defense Agency in Brussels. In this context, our country is involved in several capacity development programs: Capacity Development Plan, EU/EU Battlegroups, BGS. The last section of the study represents the conclusions and discussion
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