The Influence of Public Debt on Defence Spending in Malaysia

Abstract

This study investigates the dynamic relationship between Public Debt and Defence Spending in Malaysia, utilizing data spanning from 1991 to 2021 sourced from the World Bank. Employing the Fully Modified Ordinary Least Square (FMOLS) model, the analysis integrates Gross Domestic Saving and Exchange Rate as control variables to comprehensively explore the intricate nexus between these factors. The results reveal a robust positive association between Public Debt and Defence Spending, substantiated by the significant coefficient of 0.7601 (p < 0.01). This suggests that an increase in Public Debt corresponds to a substantial rise in Defence Spending. Additionally, the study underscores the influence of Gross Domestic Saving and Exchange Rate on Defence Spending, with coefficients of 1.5996 (p < 0.01) and 0.4703 (p < 0.05), respectively. These findings contribute valuable insights into the fiscal dynamics of Malaysia's defence budget, shedding light on the interplay between Public Debt and strategic resource allocation. The incorporation of control variables enhances the robustness of the analysis, providing a nuanced understanding of the factors shaping defence spending in the Malaysian context.