THE RELATIONSHIP BETWEEN DEFENSE SPENDING AND MACROECONOMIC VARIABLES

Year 2010, Volume: 2 Issue: 1, 103 - 111, 01.06.2010

Onur Ozsoy , Egemen Ipek

Abstract

In this study, the rate of Defense Spendings in the GDP, and the growth rate of GDP, and the
portion of current accounts in GDP and Annual Inflation Rate are examined with getting the
annual data between the 1980-2006 years, and using VAR model for Egypt, Israel, Jordan, and
Turkey. In course of this examination, the results of Granger Casuality and Impulse-Response
Functions and Variance Decomposition were used.
The focus point of our study is for the reason of defense spendings are effective on macroeconomic
variables that while Egypt and Israel has uni-directional Granger causality from the defense
spendings to inflation, for other countries there couldn`t be found any Granger causality. On the
other hand when we look at the impulse response functions, in case of a shock of defense spending
as a percentage of GNP, while the rate of Israel`s inflation and Current account as a percentage
of GNP are affected by the pozitive direction , Turkey`s growth rate is affected negatively. For
Egypt and Jordan, the significiant effects on defense spendings according to macroeconomic
variables couldn`t be found any significiant effects.

Keywords

Defense Expenditure, Macroeconomics, VAR

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