Military Spending and Employment in Eastern European Countries: New Evidence from Panel Data Analysis

Year 2023, Volume: 43 Issue: 2, 259 - 274, 30.12.2023

Abdüsselam Sağın Barış Kocaarslan

https://doi.org/10.26650/SJ.2023.43.2.0043-1

Abstract

This study used the Keynesian theory of employment to discover the relationship between military expenditure and employment in Eastern European countries (Czechia, Estonia, Latvia, Slovenia, Hungary, Slovakia, and Poland) during the postcommunist period. To ensure robust estimates, we considered other economic indicators such as gross domestic product, wages, investments, and government expenditure. To fulfill the main purpose of our research, we used several types of panel autoregressive distributed lag (ARDL) techniques, as well as the panel cointegration and panel Granger-causality tests. The results suggested that there is a cointegrating relationship between employment and other explanatory variables. We found a Granger causality from the explanatory variables of interest (military expenditure, gross domestic product, wage, investment, and government expenditure) to employment. Panel ARDL results suggested that an increase in military expenditure results in an immediate increase in employment, but over a longer period of time the opposite is true. Additionally, over time the gross domestic product and investments had a positive effect on employment, whereas wages and government expenditure harmed employment. Our findings provide useful insights into understanding the employment dynamics of Eastern European countries during the post-Cold War period and present valuable policy implications.

Keywords

Employment, Panel ARDL model, Military expenditures, Eastern European countries, Cointegration, Causality

References

• Baran, P., & Sweezy, P. (1966). Monopoly capital. Monthly Review Press. google scholar
• Barker, T., Dunne, P., & Smith, R. (1991). Measuring the peace dividend in the United Kingdom. Journal of Peace Research, 28(4), 345-358. http://www.jstor.org/stable/42412 google scholar
• Barro, R. J. (1997). Macroeconomics. MIT Press. google scholar
• Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2), 271-280. https://doi.org/10.1086/451015 google scholar
• Breitung, J., & Pesaran, M. H. (2008). Unit roots and cointegration in panels. Springer Berlin Heidelberg. google scholar
• Breitung, J., & Pesaran, M. H. (2008). Unit roots and cointegration in panels. In L. Matyas & P. Sevestre (Eds.), The econometrics of panel data (pp. 279-322). Springer. https://doi. org/10.1007/978-3-540-75892-1_9 google scholar
• Choi, I. (2001). Unit root tests for panel data. Journal ofInternational Money and Finance, 20(2), 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6 google scholar
• Delteil, V., & Kirov, V. (Eds.). (2020). Labour and social transformation in Central and Eastern Europe: Europeanization and beyond. Routledge. google scholar
• Dornbusch, R., Fischer, S., & Startz, R. (2011). Macroeconomics (11th ed). McGraw-Hill/Irwin google scholar
• Dunne, P., & Watson, D. (2000). Military expenditure and employment in South Africa. Defence and Peace Economics, 11 (4),587-596. https://doi.org/10.1080/10430710008404968 google scholar
• Eltis, W. (2000). The classical theory of economic growth. Palgrave. google scholar
• Favara, M. G. (2003). An empirical reassessment of the relationship between finance and growth. International Monetary Fund. google scholar
• Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the Econometric Society, 46(6), 1251-1271. https://doi.org/10.2307/1913827 google scholar
• Hooker, M. A., & Knetter, M. M. (1997). The effects of military spending on economic activity: Evidence from state procurement spending. Journal ofMoney, Credit, and Banking, 29(3) 400421. google scholar
• Huang, J. T., & Kao, A. P. (2005). Does defence spending matter to employment in Taiwan? Defence and Peace Economics, 16(2), 101-115. google scholar
• Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal ofEconometrics, 115(1), 53-74. google scholar
• Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. OUP Oxford. google scholar
• Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal ofEconometrics, 90(1), 1-44. google scholar
• Keynes, J. M. (1937). The general theory of employment. The Quarterly Journal of Economics 51(2), 209-223. google scholar
• Kurihara, K. K. (1959). The Keynesian theory of economic development. Columbia University Press. google scholar
• Lee, C. T. (2022). Military spending and employment. Defence and Peace Economics, 33(4), 501510. google scholar
• Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal ofEconometrics, 108(1), 1-24. google scholar
• Li, Q., & Junhua, H. (2015). Military expenditure and unemployment in China. Procedia Economics andFinance, 30, 498-504. google scholar
• Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. OxfordBulletin of Economics andStatistics, 61 (S1), 631-652. google scholar
• Magdoff, H. (1967). Review of monopoly capital [Review of Monopoly Capital, by P. A. Baran & P. M. Sweezy]. Economic Development and Cultural Change, 16(1), 145-150. http://www.jstor. org/stable/1152516 google scholar
• Malizard, J. (2014). Defense spending and unemployment in France. Defence and Peace Economics, 25(6), 635-642. google scholar
• Payne, J. E., & Ross, K. L. (1992). Defense spending and the macroeconomy. Defence and Peace Economics, 3(2), 161-168. google scholar
• Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74(4), 967-1012. google scholar
• Pesaran, M. H., & Shin, Y. (1998). An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Monographs, 31, 371-413. google scholar
• Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal ofEconometrics, 68(1), 79-113. google scholar
• Pesaran, M. H., Shin, Y., & Smith, R. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. google scholar
• Pigou, A. C. (1936). Mr. JM Keynes’ General theory of employment, interest and money. Economica, 3(10), 115-132. google scholar
• Piva, M., & Vivarelli, M. (2017). Technological change and employment: Were Ricardo and Marx right? https://ssrn.com/abstract=2903093 google scholar
• Romer, D. (2012). Advanced macroeconomics. McGraw Hill. google scholar
• Smith, R. (1978). Military expenditure and capitalism: A reply. Cambridge Journal ofEconomics, 2(3), 299-304. google scholar
• Smith, R. P. (1977). Military expenditure and capitalism. Cambridge Journal ofEconomics, 1(1), 61-76. google scholar
• Smith, R., & Georgiou, G. (1983). Assessing the effect of military expenditure on OECD economies: A survey. Contemporary Security Policy, 4(1), 3-15. google scholar
• Szymanski, A. (1973). Military spending and economic stagnation. American Journal ofSociology, 79(1), 1-14. google scholar
• Tang, J. H., Lai, C. C., & Eric, S. L. (2009). Military expenditure and unemployment rates: Granger causality tests using global panel data. Defence and Peace Economics, 20(4), 253-267. google scholar
• Wing, M. M. (1991). Defence spending and employment in Indonesia. Defence and Peace Economics, 3(1), 83-92. google scholar
• Yildirim, J., & Sezgin, S. (2003). Military expenditure and employment in Turkey. Defence and Peace Economics, 14(2), 129-139. google scholar