The Relationship between Defense Expenditures and Employment in NATO Member States: Bootstrap Panel Causality Test

Abstract

In recent years, global tensions, geopolitical risks, political crises, regional conflicts, and wars have played an important role in the increase of defense expenditures of countries. The economic effects of increased defense spending have become one of the frequently discussed topics. The aim of this study is to examine the causal relationship between defense expenditures and employment rates in 18 NATO member countries. To this end, the relationship between defense expenditures and employment rates were analyzed using the Kónya (2006) Bootstrap Panel Causality Test in the post-Cold War period. According to the findings from the 1991-2018 period, a causality relationship was found in 5 of the 18 countries in the panel from defense expenditures to employment, and in 3 of the 18 countries from employment rates to defense expenditures. Thus, it seems impossible to make a general inference about the causality relationship between defense expenditures and employment in NATO member countries.