The military expenditures and economic growth nexus: Panel bootstrap granger causality evidence from NATO countries

Mehmet Topal,Salih Türedi,Mustafa Unver

doi:10.2298/pan170914002t

Abstract

The purpose of this study is to examine the causal linkage between military expenditures and economic growth in 27 North Atlantic Treaty Organization (NATO) member countries. Different periods are studied due to the unavailability of data for the common period for all countries. Both the symmetric and the asymmetric causality between military expenditures and economic growth are investigated under cross-sectional dependence and panel heterogeneity by using the bootstrap panel Granger causality testing approach. The results indicate that there is both symmetric and asymmetric Granger-causality between military expenditures and economic growth, which vary from one country to another. The robust empirical findings support the military expenditures and economic growth nexus in 12 of the 27 NATO member countries. Moreover, the findings show that more empirical evidence between military expenditures and economic growth can be obtained when the asymmetric causality is considered, in addition to the symmetric causality.

Highlights

The military expenditures of a country, which are related to its political independence and deterrence, are an important factor in the capital budget because of their economic effects in the public and private sectors
The present study analyzes the causal relationship between military expenditures and economic growth by applying both panel symmetric and asymmetric causality testing on data from 27 North Atlantic Treaty Organization (NATO) member states
Data and Econometric Methodology The present study analyzes the causal relationship between military expenditures and economic growth by using data from 27 NATO member states

Summary

Introduction

The military expenditures of a country, which are related to its political independence and deterrence, are an important factor in the capital budget because of their economic effects in the public and private sectors. Whereas understanding how military expenditures affect economic growth has been a main focus in the defense literature, the contribution of the previous literature on the relationship between the variables is to quantify the symmetric or asymmetric causality. In this sense, many studies have aimed to examine the symmetric causality between these two variables, fewer works have explored the asymmetric causality between them. The present study analyzes the causal relationship between military expenditures and economic growth by applying both panel symmetric and asymmetric causality testing on data from 27 NATO member states

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Results

Conclusion