The Relationship Between Military Expenditure and Economic Growth in Some Middle Eastern Countries: What Is the Story?

Mohaned Al-Hamdi,Mohammad Alawin

doi:10.5539/ass.v13n1p45

Mohaned Al-Hamdi, Mohammad Alawin

Open Access

https://doi.org/10.5539/ass.v13n1p45

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Abstract

How the military burden affects economic growth, especially in developing countries, is the subject of much research in the economic literature. Studies have varied on the findings of the effects of military expenditure (ME) on growth. Therefore, we see multiple schools of thought about the relationship between ME and economic growth. However, there is a consensus that ME does in general come at an economic cost.In this paper, we use annual time series data on ME, economic growth, net export (NX), and central government expenditure (GE) in Israel and its four Arab neighbors for the period 1988-2010 to investigate the relationship between ME and the other variables for each country individually. The paper uses the unit root and cointegration techniques to determine the relationship between ME and GDP. To investigate the direction of causality between ME and GDP, we use Granger-Causality method.The main conclusion is that “relative” peace time doesn’t mean countries will stop or reduce ME. The rate of ME growth might not be as fast as it is during war times, but it is affected positively by the local income and the economic situation of the country.

Highlights

A central question that occupied the minds of economists, political scientists, and policy makers, who are interested in studying economic growth and militarization in developing countries, is whether the Military Expenditure (ME) is a burden on the national economy and to what degree is the size of this burden in times of peace and war? What are the mechanisms that this military expenditure (ME) affects the macroeconomic indicators like saving, investment, external debt, private and public consumptions, and most importantly the growth in GDP?
It appears that ME varies in its correlation with the other three variables from high positive correlation with GDP in the case of Syria to highly negative with Net Export (NX) in the case of Jordan
That means to measure openness to trade for these countries; it is not enough to look at either imports or exports, but rather on Net Export

Summary

Introduction

A central question that occupied the minds of economists, political scientists, and policy makers, who are interested in studying economic growth and militarization in developing countries, is whether the Military Expenditure (ME) is a burden on the national economy and to what degree is the size of this burden in times of peace and war? What are the mechanisms that this ME affects the macroeconomic indicators like saving, investment, external debt, private and public consumptions, and most importantly the growth in GDP?The direct comparison between ME and economic growth appears to be of non-sense since each one of them requires the other to exist, but the question about the size of the burden is still so important since it tries to find answers about methods of financing and direct and indirect effects. The importance of the question comes from the fact that the military sector uses large size of the limited resources of any society Those scarce resources have alternative uses in the productive sectors of the economy. Transferring any productive resource(s) form civilian to military sectors will lead to a decrease in the level of civilian sector production, and means less resources available to be used by the military sector in the future. This idea does not suggest necessarily that a cut in ME will lead to a better standard of living in the society, since it depends on the ways of allocating resources. Depending on the framing of the research, studies have varied on the findings of the effects of military expenditure on growth (Dunne & Tian, 2015)

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