Relationships Between Defence Expenditures and Economic Growth in G7 Countries: Panel Bootstrap Causality Analysis

Abstract

It is important to reveal the relationship between defence expenditures and economic growth for both developed countries and developing countries. Dynamic political and economic developments affect defence expenditures. Many macroeconomic variables of countries are affected by the change in defence expenditures. Economic growth comes first among these macroeconomic variables. This study aims to determine the relationships between the economic growth and defense expenditures of the G7 countries for the period 1988-2018. For this purpose, the relationships between variables were examined using bootstrap panel causality analysis developed by Kónya (2006). According to the analysis results, it was found that there is a unidirectional causality relationship from defense expenditures to economic growth in the USA, Germany, Japan, England, and Canada. The sign of causality relationships is negative in the USA, UK, and Canada, and positive in Germany and Japan. On the other hand, in the findings of the study, an insignificant causality relationship was found between variables in France and Italy. Besides, for the G7 countries, an insignificant causality relationship has been determined from economic growth to defense expenditures. Economic and political inferences were made based on the findings obtained at the end of the study.