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Relationships Between Defence Expenditures and Economic Growth in G7 Countries: Panel Bootstrap Causality Analysis

Year 2021, Volume: 5 Issue: 1, 119 - 140, 23.08.2021
https://doi.org/10.33399/biibfad.826216

Abstract

It is important to reveal the relationship between defence expenditures and economic growth for both developed countries and developing countries. Dynamic political and economic developments affect defence expenditures. Many macroeconomic variables of countries are affected by the change in defence expenditures. Economic growth comes first among these macroeconomic variables. This study aims to determine the relationships between the economic growth and defense expenditures of the G7 countries for the period 1988-2018. For this purpose, the relationships between variables were examined using bootstrap panel causality analysis developed by Kónya (2006). According to the analysis results, it was found that there is a unidirectional causality relationship from defense expenditures to economic growth in the USA, Germany, Japan, England, and Canada. The sign of causality relationships is negative in the USA, UK, and Canada, and positive in Germany and Japan. On the other hand, in the findings of the study, an insignificant causality relationship was found between variables in France and Italy. Besides, for the G7 countries, an insignificant causality relationship has been determined from economic growth to defense expenditures. Economic and political inferences were made based on the findings obtained at the end of the study.

References

  • Augier, M., McNab, R., Guo, J., & Karber, P. (2017). Defense spending and economic growth: evidence from China, 1952–2012. Defence and Peace Economics, 28(1), pp. 65–90. doi:10.1080/10242694.2015.1099204.
  • Baltagi, B. H., Feng, Q., & Kao, C. (2012). A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of Econometrics, 170(1), 164-177.
  • Bayrak, R. (2019). Does optimal size of defense expenditure exist: an empirical study on Turkey. The Journal of Defence Sciences, 18(1), 135-160.
  • Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2), 271-280.
  • Biswas, B., & Ram, R. (1986). Military expenditures and economic growth in less developed countries: an augmented model and further evidence. Economic Development and Cultural Change, 34(2), 361-372.
  • Breusch, T. S., & Pagan, A. R. (1980). The lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239-253. https://doi.org/10.2307/2297111.
  • Bulutoğlu, K. (2003). Kamu Ekonomisine Giriş Demokraside Devletin Ekonomik Kuramı. İstanbul: Yapı Kredi Yayınları:1816.
  • Butterfield, H. (1951). History and Human Relations. London: Collins.
  • Chowdhury, A. R . (1991). A causal analysis of defense spending and economic growth. The Journal of Conflict Resolution, 35(1), 80–97.
  • Deger, S., & Smith, R. (1983). Military expenditure and growth in less developed countries. Journal of conflict resolution, 27(2), 335-353.
  • Dritsakis, N. (2004). Defense spending and economic growth: an empirical investigation for greece and Turkey. Journal of Policy Modeling, 26(2), 249–64.
  • Dunne, J. P., & Tian, N. (2015). Military expenditure, economic growth and heterogeneity. Defence and Peace Economics, 26(1), 15–31. doi:10.1080/10242694.2013.848575.
  • Dunne, P., & Nikolaidou, E. (2001). Military Spending and Economic Growth in the Peripheral Economies of Europe: A Casual Analysis for Greece, Spain and Portugal. Middlesex University Business School.
  • Dunne, P., & Vougas, D. (1999). Military spending and economic growth in South Africa: A causal analysis. Journal of Conflict Resolution, 43(4), 521-537.
  • Feridun, M., Sawhney, B., & Shahbaz, M. (2011). The impact of military spending on economic growth: the case of North Cyprus. Defence and Peace Economics, 22(5), 555–62. doi:10.1080/10242694.2011.562370.
  • Fontanel, J. (1995). Economics of Disarmament, Handbook of Defense Economics I, (Ed: Keith Hartley and Todd Sandler), Amsterdam: Elsevier Science B.V., 563-590.
  • Giray, F., (2004). Savunma harcamaları ve ekonomik büyüme. Cumhuriyet Üniversitesi, İktisadi ve İdari Bilimler Dergisi, 5(1), 181-196.
  • Gyimah-Brempong, K. (1989). Defense spending and economic growth in Subsaharan Africa: an econometric investigation. Journal of Peace Research, 26(1), 79-90.
  • Heo, U. (2010). The relationship between defense spending and economic growth in the United States. Political Research Quarterly, 63(4), 760–70. doi:10.1177/1065912909334427.
  • Herz, J. H. (1950). Idealist internationalism and the security dilemma. World Politics: A Quarterly Journal of International Relations, 2, 157-180.
  • Hou, N., & Chen, B. (2013). Military expenditure and economic growth in developing countries: evidence from system GMM estimates. Defence and Peace Economics, 24(3), 183–93. doi:10.1080/10242694.2012.710813.
  • Joerding, W. (1986). Economic growth and defense spending. Journal of Development Economics, 21(1), 35–40. doi:10.1016/0304-3878(86)90037-4.
  • Kalyoncu, H., & Yucel, F. (2006). An analytical approach on defense expenditure and economic growth: the case of Turkey and Greece. Journal of Economic Studies, 33(5), 336–343. doi:10.1108/01443580610706564.
  • Khalid, M.A., & Razaq, M.A.J.A. (2015). The impact of military spending on economic growth: evidence from the US economy. Research Journal of Finance and Accounting, 6(7), 183-190.
  • Kollias, C., & Makrydakis, S. (2000). A note on the causal relationship between defence spending and growth in Greece: 1955-93. Defence and Peace Economics, 11(2), 173–84. doi:10.1080/10430710008404945.
  • Kollias, C., Manolas, G., & Paleologou, S. M. (2004). Defence expenditure and economic growth in the European Union. a causality analysis. Journal of Policy Modeling, 26(5), 553–69. doi:10.1016/j.jpolmod.2004.03.013.
  • Kónya, L. (2006). Exports and growth: granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978–92. https://doi.org/10.1016/j.econmod.2006.04.008.
  • Korkmaz, S. (2015). The effect of military spending on economic growth and unemployment. International Journal of Economics and Financial Issues, 5(1), 273–80.
  • Looney, R. E. (1994). The Economics of Third World Defense Expenditures, London: Jai Press, Inc.
  • Maslow, A. H. (1964). Readings in Managerial Psychology, (Ed: Harold J. Leavitt, Louis R. Pondy, David M. Boje) “A Theory of Human Motivation. Psychological Review, 20-36”, The Universty of Chicago Press. Ltd. London.
  • Mintz, A., & Stevenson, R.T. (1995). Defense expenditures, economic growth, and the ‘peace dividend’: a longitudinal analysis of 103 countries. Journal of Conflict Resolution, 39(2), 283–305. doi:10.1177/0022002795039002004.
  • Mylonidis, N. (2008). Revisiting the nexus between military spending and growth in the European Union. Defence and Peace Economics, 19(4), 265-272.
  • Pan, C. I., Chang, T., & Wolde-Rufael, Y. (2015). Military spending and economic growth in the Middle East countries: bootstrap panel causality test. Defence and Peace Economics, 26(4), 443–56. doi:10.1080/10242694.2014.891356.
  • Payne, J. E., & Ross, K.L. (1992). Defense spending and the macroeconomy. Defence Economics, 3(2), 161–168. doi:10.1080/10430719208404724.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics. https://doi.org/10.17863/CAM.5113.
  • Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50–93. https://doi.org/10.1016/j.jeconom.2007.05.010.
  • Pesaran, M. H., Ullah, A., & Yamagata, T. (2008). A bias-adjusted LM test of error cross-section independence. The Econometrics Journal, 11(1), 105–27. https://doi.org/10.1111/j.1368-423X.2007.00227.x.
  • Sezgin, S. (1997). Country survey X: defence spending in Turkey. Defence and Peace Economics, 8(4), 381–409. doi:10.1080/10430719708404887.
  • Shahbaz, M., Afza, T., & Shabbir, M.S. (2013). Does defence spending impede economic growth? cointegration and causality analysis for Pakistan. Defence and Peace Economics, 24(2), 105–20. doi:10.1080/10242694.2012.723159.
  • Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1-76. https://doi.org/10.2307/1912017.
  • SIPRI (2020a). https://www.sipri.org/media/press-release/2020/global-military-expenditure-sees-largest-annual-increase-decade-says-sipri-reaching-1917-billion [Access Date: 05 November 2020].
  • SIPRI (2020b). https://armstrade.sipri.org/armstrade/page/toplist.php [Access Date: 05 November 2020].
  • Tiwari, A. K., & Shahbaz, M. (2013). Does defence spending stimulate economic growth in India? A revisit. Defence and Peace Economics, 24(4), 371–95. doi:10.1080/10242694.2012.710814.
  • Yakovlev, P. (2007). Arms trade, military spending, and economic growth. Defence and Peace Economics, 18(4), 317–38. doi:10.1080/10242690601099679.
  • Yildirim, J., & Öcal, N. (2006). Arms race and economic growth: the case of India and Pakistan. Defence and Peace Economics, 17(1), 37–45. doi:10.1080/10242690500369231.
  • Yildirim, J., Sezgin, S. & Öcal, N. (2005). Military expenditure and economic growth in Middle Eastern countries: a dynamic panel data analysis. Defence and Peace Economics, 16(4), 283–95. doi:10.1080/10242690500114751.
  • Zellner, A. (1962). An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57(298), 348–68. https://doi.org/10.1080/01621459.1962.10480664.
  • Zhao, L., Zhao, L., & Chen, B.F. (2017). The interrelationship between defence spending, public expenditures and economic growth: evidence from China. Defence and Peace Economics, 28(6), 703–18. Doi:10.1080/10242694.2015.1111603.
  • Zhong, M., Chang, T., Goswami, S., Gupta, R., & Lou, T.W. (2017). The nexus between military expenditures and economic growth in the BRICS and the US: an empirical note. Defence and Peace Economics, 28(5), 609–20. doi:10.1080/10242694.2016.1144897.

Relationships Between Defence Expenditures and Economic Growth in G7 Countries: Panel Bootstrap Causality Analysis

Year 2021, Volume: 5 Issue: 1, 119 - 140, 23.08.2021
https://doi.org/10.33399/biibfad.826216

Abstract

Savunma harcamaları ile iktisadi büyüme arasındaki ilişkilerin ortaya konulması hem gelişmiş ülkeler hem de gelişmekte olan ülkeler için önem arz etmektedir. Dinamik siyasi ve iktisadi gelişmeler savunma harcamalarını etkilemektedir. Savunma harcamalarının değişmesiyle birlikte ülkelerin birçok makroiktisadi değişkenleri de etkilenmektedir. Bu makroiktisadi değişkenlerin başında iktisadi büyüme gelmektedir. Bu kapsamda çalışmanın amacı G7 ülkelerine ait 1988-2018 dönemine ait savunma harcamaları ile iktisadi büyüme arasındaki ilişkileri tespit etmektir. Bu amaç doğrultusunda değişkenler arasındaki ilişkiler Kónya (2006) tarafından geliştirilmiş bootstrap panel nedensellik analizi yardımıyla incelenmiştir. Analiz sonuçlarına göre ABD, Almanya, Japonya, İngiltere, Kanada’da savunma harcamalarından iktisadi büyümeye doğru tek yönlü bir nedensellik ilişkisi olduğu bulgusuna ulaşılmıştır. Nedensellik ilişkilerinin işareti ABD, İngiltere ve Kanada’da negatif, Almanya ve Japonya’da pozitiftir. Diğer taraftan çalışmanın bulgularında Fransa ve İtalya’da değişkenler arasında istatistiki olarak herhangi bir nedensellik ilişkisi tespit edilememiştir. Ayrıca G7 ülkeleri için iktisadi büyümeden savunma harcamalarına doğru istatistiki olarak herhangi bir nedensellik ilişkisi saptanmamıştır. Çalışmanın sonunda elde edilen bulgulara dayanarak iktisadi ve politik çıkarımlar yapılmıştır. 

References

  • Augier, M., McNab, R., Guo, J., & Karber, P. (2017). Defense spending and economic growth: evidence from China, 1952–2012. Defence and Peace Economics, 28(1), pp. 65–90. doi:10.1080/10242694.2015.1099204.
  • Baltagi, B. H., Feng, Q., & Kao, C. (2012). A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of Econometrics, 170(1), 164-177.
  • Bayrak, R. (2019). Does optimal size of defense expenditure exist: an empirical study on Turkey. The Journal of Defence Sciences, 18(1), 135-160.
  • Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2), 271-280.
  • Biswas, B., & Ram, R. (1986). Military expenditures and economic growth in less developed countries: an augmented model and further evidence. Economic Development and Cultural Change, 34(2), 361-372.
  • Breusch, T. S., & Pagan, A. R. (1980). The lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239-253. https://doi.org/10.2307/2297111.
  • Bulutoğlu, K. (2003). Kamu Ekonomisine Giriş Demokraside Devletin Ekonomik Kuramı. İstanbul: Yapı Kredi Yayınları:1816.
  • Butterfield, H. (1951). History and Human Relations. London: Collins.
  • Chowdhury, A. R . (1991). A causal analysis of defense spending and economic growth. The Journal of Conflict Resolution, 35(1), 80–97.
  • Deger, S., & Smith, R. (1983). Military expenditure and growth in less developed countries. Journal of conflict resolution, 27(2), 335-353.
  • Dritsakis, N. (2004). Defense spending and economic growth: an empirical investigation for greece and Turkey. Journal of Policy Modeling, 26(2), 249–64.
  • Dunne, J. P., & Tian, N. (2015). Military expenditure, economic growth and heterogeneity. Defence and Peace Economics, 26(1), 15–31. doi:10.1080/10242694.2013.848575.
  • Dunne, P., & Nikolaidou, E. (2001). Military Spending and Economic Growth in the Peripheral Economies of Europe: A Casual Analysis for Greece, Spain and Portugal. Middlesex University Business School.
  • Dunne, P., & Vougas, D. (1999). Military spending and economic growth in South Africa: A causal analysis. Journal of Conflict Resolution, 43(4), 521-537.
  • Feridun, M., Sawhney, B., & Shahbaz, M. (2011). The impact of military spending on economic growth: the case of North Cyprus. Defence and Peace Economics, 22(5), 555–62. doi:10.1080/10242694.2011.562370.
  • Fontanel, J. (1995). Economics of Disarmament, Handbook of Defense Economics I, (Ed: Keith Hartley and Todd Sandler), Amsterdam: Elsevier Science B.V., 563-590.
  • Giray, F., (2004). Savunma harcamaları ve ekonomik büyüme. Cumhuriyet Üniversitesi, İktisadi ve İdari Bilimler Dergisi, 5(1), 181-196.
  • Gyimah-Brempong, K. (1989). Defense spending and economic growth in Subsaharan Africa: an econometric investigation. Journal of Peace Research, 26(1), 79-90.
  • Heo, U. (2010). The relationship between defense spending and economic growth in the United States. Political Research Quarterly, 63(4), 760–70. doi:10.1177/1065912909334427.
  • Herz, J. H. (1950). Idealist internationalism and the security dilemma. World Politics: A Quarterly Journal of International Relations, 2, 157-180.
  • Hou, N., & Chen, B. (2013). Military expenditure and economic growth in developing countries: evidence from system GMM estimates. Defence and Peace Economics, 24(3), 183–93. doi:10.1080/10242694.2012.710813.
  • Joerding, W. (1986). Economic growth and defense spending. Journal of Development Economics, 21(1), 35–40. doi:10.1016/0304-3878(86)90037-4.
  • Kalyoncu, H., & Yucel, F. (2006). An analytical approach on defense expenditure and economic growth: the case of Turkey and Greece. Journal of Economic Studies, 33(5), 336–343. doi:10.1108/01443580610706564.
  • Khalid, M.A., & Razaq, M.A.J.A. (2015). The impact of military spending on economic growth: evidence from the US economy. Research Journal of Finance and Accounting, 6(7), 183-190.
  • Kollias, C., & Makrydakis, S. (2000). A note on the causal relationship between defence spending and growth in Greece: 1955-93. Defence and Peace Economics, 11(2), 173–84. doi:10.1080/10430710008404945.
  • Kollias, C., Manolas, G., & Paleologou, S. M. (2004). Defence expenditure and economic growth in the European Union. a causality analysis. Journal of Policy Modeling, 26(5), 553–69. doi:10.1016/j.jpolmod.2004.03.013.
  • Kónya, L. (2006). Exports and growth: granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978–92. https://doi.org/10.1016/j.econmod.2006.04.008.
  • Korkmaz, S. (2015). The effect of military spending on economic growth and unemployment. International Journal of Economics and Financial Issues, 5(1), 273–80.
  • Looney, R. E. (1994). The Economics of Third World Defense Expenditures, London: Jai Press, Inc.
  • Maslow, A. H. (1964). Readings in Managerial Psychology, (Ed: Harold J. Leavitt, Louis R. Pondy, David M. Boje) “A Theory of Human Motivation. Psychological Review, 20-36”, The Universty of Chicago Press. Ltd. London.
  • Mintz, A., & Stevenson, R.T. (1995). Defense expenditures, economic growth, and the ‘peace dividend’: a longitudinal analysis of 103 countries. Journal of Conflict Resolution, 39(2), 283–305. doi:10.1177/0022002795039002004.
  • Mylonidis, N. (2008). Revisiting the nexus between military spending and growth in the European Union. Defence and Peace Economics, 19(4), 265-272.
  • Pan, C. I., Chang, T., & Wolde-Rufael, Y. (2015). Military spending and economic growth in the Middle East countries: bootstrap panel causality test. Defence and Peace Economics, 26(4), 443–56. doi:10.1080/10242694.2014.891356.
  • Payne, J. E., & Ross, K.L. (1992). Defense spending and the macroeconomy. Defence Economics, 3(2), 161–168. doi:10.1080/10430719208404724.
  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics. https://doi.org/10.17863/CAM.5113.
  • Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50–93. https://doi.org/10.1016/j.jeconom.2007.05.010.
  • Pesaran, M. H., Ullah, A., & Yamagata, T. (2008). A bias-adjusted LM test of error cross-section independence. The Econometrics Journal, 11(1), 105–27. https://doi.org/10.1111/j.1368-423X.2007.00227.x.
  • Sezgin, S. (1997). Country survey X: defence spending in Turkey. Defence and Peace Economics, 8(4), 381–409. doi:10.1080/10430719708404887.
  • Shahbaz, M., Afza, T., & Shabbir, M.S. (2013). Does defence spending impede economic growth? cointegration and causality analysis for Pakistan. Defence and Peace Economics, 24(2), 105–20. doi:10.1080/10242694.2012.723159.
  • Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1-76. https://doi.org/10.2307/1912017.
  • SIPRI (2020a). https://www.sipri.org/media/press-release/2020/global-military-expenditure-sees-largest-annual-increase-decade-says-sipri-reaching-1917-billion [Access Date: 05 November 2020].
  • SIPRI (2020b). https://armstrade.sipri.org/armstrade/page/toplist.php [Access Date: 05 November 2020].
  • Tiwari, A. K., & Shahbaz, M. (2013). Does defence spending stimulate economic growth in India? A revisit. Defence and Peace Economics, 24(4), 371–95. doi:10.1080/10242694.2012.710814.
  • Yakovlev, P. (2007). Arms trade, military spending, and economic growth. Defence and Peace Economics, 18(4), 317–38. doi:10.1080/10242690601099679.
  • Yildirim, J., & Öcal, N. (2006). Arms race and economic growth: the case of India and Pakistan. Defence and Peace Economics, 17(1), 37–45. doi:10.1080/10242690500369231.
  • Yildirim, J., Sezgin, S. & Öcal, N. (2005). Military expenditure and economic growth in Middle Eastern countries: a dynamic panel data analysis. Defence and Peace Economics, 16(4), 283–95. doi:10.1080/10242690500114751.
  • Zellner, A. (1962). An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. Journal of the American Statistical Association, 57(298), 348–68. https://doi.org/10.1080/01621459.1962.10480664.
  • Zhao, L., Zhao, L., & Chen, B.F. (2017). The interrelationship between defence spending, public expenditures and economic growth: evidence from China. Defence and Peace Economics, 28(6), 703–18. Doi:10.1080/10242694.2015.1111603.
  • Zhong, M., Chang, T., Goswami, S., Gupta, R., & Lou, T.W. (2017). The nexus between military expenditures and economic growth in the BRICS and the US: an empirical note. Defence and Peace Economics, 28(5), 609–20. doi:10.1080/10242694.2016.1144897.
There are 49 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Makaleler
Authors

Şerif Canbay 0000-0001-6141-7510

Mustafa Kırca 0000-0002-5630-7525

Erkan Oflaz 0000-0001-9421-3282

Publication Date August 23, 2021
Submission Date November 15, 2020
Published in Issue Year 2021 Volume: 5 Issue: 1

Cite

APA Canbay, Ş., Kırca, M., & Oflaz, E. (2021). Relationships Between Defence Expenditures and Economic Growth in G7 Countries: Panel Bootstrap Causality Analysis. Bingöl Üniversitesi İktisadi Ve İdari Bilimler Fakültesi Dergisi, 5(1), 119-140. https://doi.org/10.33399/biibfad.826216


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