Abstract
This study aims to analyze the relationship between defense expenditure and growth of the economy in Sri Lanka applying annual data during the period between 1990-2019 by engaging the ARDL bounds test and the Granger causality test. Economic growth is considered as a dependent variable whereas; defense expenditure, broad money supply, capital investment and exchange rate are considered as independent variables for this study. The findings revealed that defense spending has a significant and positive effect on economic growth in the long- run. Exchange rate, capital investment and broad money supply have a significant and positive influence in the short-run and long-run. Further, the output of the Granger causality confirms the one-way association between the growth of the economy and defense expenditure. The study suggests that government should concentrate more on human capital development rather than spending on defense.
Highlights
In developing countries, defense expenses are vital and comparatively higher than the expenses of health and education in total government expenditure
The stationarity position of the variables is fixed before carried out the Auto-Regressive Distributed Lag (ARDL) bounds test, in order to ensure that the variables are not I [2] (Narayan, 2004)
The allocation of scarcity resource into defense or nondefense spending for emerging economies is one of the vital policy issues which direct the economic growth particular nation
Summary
Defense expenses are vital and comparatively higher than the expenses of health and education in total government expenditure. Jerusha spending and economic growth in the developing countries (Aviral and Muhammad 2013).Since defense spending offers the best production events to domestic and foreign investors and a peaceful environment for investment and found a positive relationship between defense spending and economic growth in the developing countries (Aviral and Muhammad 2013). Albert & Webb (2009) recommends that when the government considers non-military spending with a higher priority significantly achieved a higher rate of growth. They elaborate the transformation of government expenditure from the military to non-military sectors increase in economic growth resulting from– following the cessation of hostilities could be substantial
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