The Effect of Geopolitical Risk Index on Military Expenditures

Year 2021, Volume: 12 Issue: 29, 188 - 203, 20.02.2021

Özge Buzdağlı , Dilek Özdemir

https://doi.org/10.21076/vizyoner.761633

Cited By: 10

Abstract

The aim of the study is to examine the effect of geopolitical risk index (GPR) on the military expenditures. Panel analysis method is applied by using the data of 1993-2018 period for 17 developing countries where GPR is calculated. The military expenditures are considered as the dependent variable and GPR index as an independent variable. As control variables, exports, imports and GDP per capita are taken. After determining the existence of long-term relationships between variables with Westerlund (2007) cointegration test, long-term coefficients are estimated with the panel AMG estimator. Following the estimation results, it is observed that GPR and GDP per capita have a positive effect on military expenditures. In addition, it is determined that exports affect military expenditures negatively, while imports are not found to have a statistically significant effect on military expenditures. For the short-term analysis, the causality test developed by Emirmahmutoğlu and Köse (2011) is applied and a two-way causality relationship between military expenditures and the geopolitical risk index and per capita GDP is determined. However, no causal relationship is found between exports, imports and military expenditures.

Keywords

Geopolitical Risk Index, Military Expenditures, Panel Data Analysis

Jeopolitik Risk Endeksinin Askeri Harcamalar Üzerindeki Etkisi

Abstract

Çalışmada jeopolitik risk endeksinin (GPR), askeri harcamalar üzerine etkisinin incelenmesi amaçlanmıştır. GPR’nin hesaplandığı 17 gelişmekte olan ülkeye ait 1993-2018 dönemi verilerinden yararlanılarak panel analiz yöntemi uygulanmıştır. Askeri harcamalar bağımlı değişken, GPR endeksi ise bağımsız değişken olarak ele alınmıştır. Kontrol değişkenler olarak da ihracat, ithalat ve kişi başı GSYH’ye yer verilmiştir. Westerlund (2007) eşbütünleşme testiyle değişkenler arasında uzun dönemli ilişkinin varlığı saptandıktan sonra panel AMG tahmincisiyle uzun dönem katsayıları tahmin edilmiştir. Analiz sonuçlarında jeopolitik risk endeksindeki ve kişi başı gelirdeki artışların ülkelerin askeri harcamalarını arttırdığı görülmüştür. Ayrıca ihracattaki artışların da askeri harcamalarda azalışa neden olduğu tespit edilmiştir. İthalatın ise askeri harcamalar üzerinde istatistiki açıdan anlamlı bir etkisi bulunamamıştır. Kısa dönem analizi için Emirmahmutoğlu ve Köse (2011) tarafından geliştirilen nedensellik testi uygulanmış ve askeri harcamalar ile jeopolitik risk endeksi ve kişi başına GSYH arasında çift yönlü bir nedensellik ilişkisi tespit edilmiştir. Ancak ihracat ve ithalat ile askeri harcamalar arasında herhangi bir nedensellik ilişkisine rastlanılmamıştır. 

Keywords

Jeopolitik Risk Endeksi, Askeri Harcamalar, Panel Veri Analizi

References

• Abdelfattah M. Y., Abu-Qarn, A. S., Dunne J. P. ve Zaher S. (2014). The Demand for Military Spending in Egypt. Defence and Peace Economics, 25(3), 231-245. doi:10.1080/10242694.2013.763454
• Akadiri, S. S., Eluwole, K. K., Akadiri, A. C. ve Avci, T. (2020). Does causality between geopolitical risk, tourism and economic growth matter? Evidence from Turkey. Journal of Hospitality and Tourism Management, 43, 273–277.
• Albalate, D., Bel G. ve Elias, F. (2012). Institutional determinants of military spending. Journal of Comparative Economics. 40, 279–290.
• Alqahtani, A. ve Taillard, M. (2020). Global energy and geopolitical risk: Behavior of oil markets. International Journal of Energy Sector Management, 14(2), 358-371.
• Antonakakis, N., Gupta, R., Kollias, C. ve Papadamou, S. (2017). Geopolitical risks and the oil-stock nexus over 1899–2016. Finance Research Letters, 23, 165-173.
• Apergis, N., Bonato, M., Gupta, R. ve Kyei, C. (2018). Does geopolitical risks predict stock returns and volatility of leading defense companies? evidence from a nonparametric approach. Defence and Peace Economics, 29(6), 684-696.
• Arslan, C. K. (2019). Jeopolitik Riskin Doğrudan yabancı yatırımlar üzerindeki etkisi. Avrasya Sosyal ve Ekonomi Araştırmaları Dergisi (ASEAD), 6(6), 435-441.
• Aysan, A. F., Demir, E., Gozgor, G. ve Lau, C. K. M. (2019). Effects of the geopolitical risks on Bitcoin returns and volatility, Research in International Business and Finance, 47, 511–518.
• Bouoiyour, J., Selmi, R., Hammoudeh, S. ve Wohar, M. E. (2019). What are the categories of geopolitical risks that could drive oil prices haigher? Acts or threats?, Energy Economics, 84, 1-14.
• Buzdağlı, Ö., Bilici, N., Gerni, M. ve Emsen, Ö. S. (2018). Stresli ekonomilerde savunma sanayi rekabet gücünde gelişmeler. Uluslararası Avrasya Ekonomileri Konferansı, Avrasya Ekonomistler Derneği, 18-20 Haziran 2018, Taşkent- Özbekistan, 384-390.
• Caldara, D. ve Iacoviello, M., (2018). Measuring geopolitical risk. International Finance Discussion Papers, 1222, 1-47.
• Carroll, C. (1996). Buffer-stock Saving and the Life Cycle/Permanent Income Hypothesis. NBER Working Paper No. 5788, 1-63.
• Cheng, C. H. J. ve Chiu C-W. (2019). How important are global geopolitical risks to emerging countries?. International Economics, 156, 305–325.
• Coşar, E. E. ve Şahinöz, S. (2018). Quantifying uncertainty and identifying its impacts on the Turkish economy. Central Bank of the Republic of Turkey Working Paper, 18(6), 1-24.
• Das, D., Kannadhasan, M. ve Bhattacharyya, M. (2019). Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?. North American Journal of Economics and Finance, 48, 1–19.
• Das, D., Kannadhasan, M. ve Bhattacharyya, M. (2019). Geopolitical risk and precious metals, Journal of Economic Research, 24, 49-66.
• Dixit, A. ve Pindyck, R. (1994). Investment under uncertainty. Princeton University Press, Princeton.
• Dunne J. P., Nikolaidou E. ve Mylonidis, N. (2003). The demand for military spending in the peripheral economies of Europe. Defence and Peace Economics, 14(6), 447-460. doi:10.1080/1024269032000085215.
• Eberhardt, M. ve Bond, S. (2009). Cross-section dependence in nonstationary panel models: A novel estimator, (MPRA Paper 17692), University Library of Munich, Erişim adresi: http://mpra.ub.unimuenchen.de/17692.pdf., (12.01.2019).
• Eberhardt, M. ve Teal, F. (2010). Productivity analysis in global manufacturing production, Discussion Paper 515, Department of Economics, University of Oxford, Erişim adresi: http://www.economics.ox.ac.uk/research/WP/pdf/paper515.pdf., (12.01.2019)
• Economic Policy Uncertainty. (2020). Erişim adresi: https://www.policyuncertainty.com/, (12.01.2019).
• Emirmahmutoğlu, F. ve Köse, N. (2011). Testing for granger causality in heterogeneous mixed panels. Economic Modelling, 28, 870-876.
• Fania, N., Yan, C., Kuyon, J. B. ve Djeri, S. (2020). Geopolitical risks (GPRs) and foreign direct investments: A business risk approach, Global Journal of Management and Business Research: B, 20(1), 1-9.
• Gupta, R., Gozgor, G., Kaya, H. ve Demir, E. (2019). Effects of geopolitical risks on trade flows: Evidence from the gravity model. Eurasian Economic Review, 9, 515–530.
• Hewitt, D. P. (1996). Military expenditures 1972-1990: The reasons behind the post-1985 fall in world military spending. Public Budgeting & Fin. Manegment, 7(4), 520-558.
• Ichrakieh, L. ve Zeaiter, H. (2019). The role of geopolitical risks on the Turkish economy opportunity or threat. North American Journal of Economics and Finance, 50, 1-15.
• Iltas, Y. (2020). Farklı risk türleri ve borsa endeksi arasındaki ilişki: Türkiye için nedensellik testleri. Business and Economics Research Journal, 11(2), 371-384.
• Liu, J., Ma, F., Tang, Y. ve Zhang, Y. (2019). Geopolitical risk and oil volatility: A new insight. Energy Economics, 84, 1-10.
• Nikolaidou E. (2008). The Demand For Military Expenditure: Evidence From The Eu15 (1961–2005), Defence and Peace Economics, 19(4), 273-292. doi:10.1080/10242690802166533
• Odehnal, J. ve Neubauer, J. (2020). Economic, security, and political determinants of military spending in NATO countries. Defence and Peace Economics, 31(5), 517-531. doi:10.1080/10242694.2018.1544440
• Özçelik, Ö. ve Önder, H. (2016). Savunma harcamalarına terör riskinin etkisi: Ampirik bir uygulama. Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, 47, 36-46.
• Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22, 265-312.
• Pesaran, M. H., (2004). General diagnostic tests for cross section dependence in panels, Journal of Applied Econometrics, 20, 264-309.
• Pesaran, M. H., Ullah, A. ve Yamagata, T. (2008). A bias-adjusted lm test of error cross section independence. The Econometrics Journal, 11(1), 105-127.
• Plakandaras, V., Gogas, P. ve Papadimitriou, T. (2019). The effects of geopolitical uncertainty in forecasting financial markets: A machine learning approach. Algorithms, 12, 1-17.
• Sezgin, S.ve Yildirim, J. (2002). The demand for Turkish defence expenditure. Defence and Peace Economics, 13(2), 121-128. doi:10.1080/10242690210973
• Sharif, A., Aloui, C. ve Yarovaya, L. (2020). COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the waveletbased approach. International Review of Financial Analysis, 70, 1-9.
• Solomon, B. (2005). The demand for Canadian defence expenditures. Defence and Peace Economics, 16(3), 171-189. doi:10.1080/10242690500123380
• Soybilgen, B., Kaya, H. ve Dedeoglu, D. (2019). Evaluating the effect of geopolitical risks on the growth rates of emerging countries. Economics Bulletin, 39(1), 717-725.
• Stockholm International Peace Research Institute. (2020). Erişim adresi: https://www.sipri.org/, (12.01.2019).
• Tiryaki, H. N. ve Tiryaki, A. (2018). Determinants of Turkish stock returns under the impact of economic policy uncertainty. International Journal of Economic and Administrative Studies, 22, 147-162.
• Tiwari, A. K., Das, D. ve Dutta, A. (2019). Geopolitical risk, economic policy uncertainty and tourist arrivals: Evidence from a developing country, Tourism Management, 75, 323-327.
• Wang, X., Wu, Y. ve Xu, W. (2019). Geopolitical risk and investment. Available at SSRN 3305739, Erişim adresi: papers.ssrn.com, (12.01.2019).
• Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69, 709-748.
• World Bank. (2020). Erişim adresi: https://databank.worldbank.org/reports.aspx?source=world-development-indicators, (12.01.2019).