Defense Expenditures and Economic Growth Relationship: Panel Threshold Analysis for OECD Countries

Öz

Since Benoit's (1973) work, which argued that defense spending positively affects economic growth, the effects of defense spending on economic growth have been widely examined, and different theories have been developed. Linear models are generally used in the study of this topic. Considering that many economic variables may have a nonlinear generating mechanism, it is found that this is neglected in studies of defense spending and economic growth. This study examines the relationship between defense spending and economic growth using the panel threshold model for 17 OECD countries. According to empirical results, a linear relationship between defense expenditures and economic growth could not be observed. This result shows that the effect of defense spending on economic growth can change with the threshold value. The findings suggest that defense spending above (below) the threshold of 0.599 positively (negatively) influences economic growth. Key Words:Defense Spending,Economic Growth,OECD Countries,Panel Threshold Model. JEL Classification: H50, O40, C50.

Savunma Harcamaları ve Ekonomik Büyüme İlişkisi: OECD Ülkeleri İçin Panel Eşik Değer Analizi

Öz

Benoit’in (1973) savunma harcamalarının ekonomik büyümeyi olumlu etkilediğini ileri süren çalışmasından bu yana, savunma harcamalarının ekonomik büyüme üzerindeki etkileri kapsamlı bir şekilde incelenmiş ve birbirinden farklı teoriler geliştirilmiştir. Bu konunun incelenmesinde genellikle doğrusal modeller kullanılmıştır. Birçok ekonomik değişkenin doğrusal olmayan bir veri yaratma mekanizmasına sahip olabileceği düşünüldüğünde, savunma harcamaları ve ekonomik büyüme konusunda yapılan çalışmalarda bu durumun ihmal edildiği görülmektedir. Bu çalışma, savunma harcamaları ve ekonomik büyüme ilişkisini panel eşik değer modeli kullanarak 17 OECD ülkesi için incelemektedir. Ampirik sonuçlara göre, savunma harcamaları ve ekonomik büyüme arasında lineer bir ilişki gözlenememiştir. Bu sonuç, savunma harcamalarının ekonomik büyümeye olan etkisinin eşik değere bağlı olarak değişebileceğini göstermektedir. Analiz sonuçlarına göre, savunma harcama oranı 0.599 eşiğinin üzerindeki (altındaki) durumda, ekonomik büyümeye olan etkisi pozitif (negatif) görünmektedir. Anahtar Kelimeler: Savunma Harcamaları, Ekonomik Büyüme, OECD Ülkeleri, Panel Eşik Regresyon Analizi. JEL Sınıflandırması: H50, O40, C50.

Anahtar Kelimeler

• Savunma Harcamaları
• Ekonomik Büyüme
• OECD Ülkeleri
• Panel Eşik Regresyon Analizi

Kaynakça

1. Ahmed, Z., Zafar, M. W. and Mansoor, S. (2020). Analyzing the Linkage Between Military Spending, Economic Growth, and Ecological Footprint in Pakistan: Evidence From Cointegration and Bootstrap Causality. Environmental Science and Pollution Research, 27, 41551-41567. Doi: 10.1007/s11356-020-10076-9
2. Ain, Q. U., Rais, S. I., Shah, S. T. H., Zaman, K., Ejaz, S. and Mansoor, A. (2019). Empirically Testing Keynesian Defense Burden Hypothesis, Nonlinear Hypothesis, and Spillover Hypothesis: Evidence from Asian Countries. Theoretical and Applied Economics, 2019, 26-1(618), 169-182.
3. Alptekin, A. and P. Levine. (2011). Military Expenditure and Economic Growth: A Meta-Analysis. European Journal of Political Economy, 28(4): 636-650. Doi: 10.1016/j.ejpoleco.2012.07.002
4. Ateşoglu, H.S. and Mueller, M.J. (1990). Defense Spending and Economic Growth. Defense Economics, 2, 19-27.
5. Babin, N. E. (1986). The Impact of Military Expenditures on Economic Growth and Development in the Less Developed Countries. Unpublished Ph.D. dissertation, College Park, University of Maryland.
6. Bakare, A. (2011). A Theoretical Analysis of Capital Formation And Growth in Nigeria. Far East Journal of Psychology and Business, 3(1), 11-24.
7. Benoit, E. (1973). Defence and Economic Growth in Developing Countries. D.C. Heath, Boston.
8. Benoit, E. (1978). Growth and Defence in Developing Countries. Economic Development and Cultural Change, 26(2), 271-287.

9. Biswas, B. (1992). Defence Spending and Economic Growth in Developing Countries. Economic Research Institute Study Papers, ERI Study Paper, 92-104.
10. Brasoveanu, L. O. (2010). The Impact of Defense Expenditure on Economic Growth. Romanian Journal of Economic Foecasting, 13(4), 148-168.
11. Chan, K.S. (1993). Consistency and Limiting Distribution of the Least Squares Estimator of a Threshold Autoregressive Model. The Annals of Statistics, 21, 520-533.
12. Chang, H.C., Huang, B.N. and Yang, C.W. (2011). Military Expenditure and Economic Growth Across Different Groups: A Dynamic Panel Granger-Causality Approach. Economic Modelling, 28, 2416-2423. Doi: 10.1016/j.econmod.2011.06.001
13. Çetin, I. ve Güzel, S. (2019). Military Expenditures and Economic Growth in Middle East and North African Countries. TESAM Akademi Dergisi, 6(1), 187-211. Doi: /10.30626/tesamakademi.528018
14. D’Agostino, G., Dunne, J. P. and Pieroni, L. (2019). Military Expenditure, Endogeneity and Economic Growth. Defence and Peace Economics, 30(5), 509-524. Doi: 10.1080/10242694.2017.1422314
15. Daddi, P., D’Agostino, G. and Pieroni, L. (2018). Does Military Spending Stimulate Growth? An Empirical Investigation in Italy. Defence and Peace Economics, 29(4), 440-458. Doi: 10.1080/10242694.2016.1158438
16. De Long, B. and Summers, L. (1991). Equipment Investment and Economic Growth. NBER Working Paper Series, No: 3515.
17. Deger, S. and Smith, R. (1983). Military Expenditure and Growth in Less Developed Countries. Journal of Conflict Resolution, 27, 335-353.
18. Derouen, Jr., K.R. (1994). Defense Spending and Economic Growth in Latin America: The Externalities Effects. International Interactions, 19(3), 193-212. Doi: 10.1080/03050629408434827
19. Dimitraki, O. and Win. S. (2019). Military Expenditure Economic Growth Nexus in Jordan: An Application of ARDL Bound Test Analysis in the Presence of Breaks. Defence and Peace Economics, Doi:10.1080/10242694.2020.1730113.
20. Dunne, J.P., Smith, R. and Willenbockel, D. (2005). Models of Military Expenditure and Growth: A Critical Review. Defence and Peace Economics, 16, 449-461. Doi: 10.1080/10242690500167791
21. Dunne, P. and E. Nikolaidou. (2001). Military Spending and Economic Growth: A Demand and Supply Model for Greece, 1960-96. Defence and Peace Economics, 12(1), 47-67. Doi: 10.1080/10430710108404976
22. Feder, G. (1982). On Exports and Economic Growth. Journal of Development Economics, 12(1/2), 59-73.
23. Hansen, B. E. (1999). Threshold Effects in Non-Dynamic Panels: Estimation, Testing and Inference. Journal of Econometrics, 93, 345-368. Doi: 10.1016/S0304-4076(99)00025-1
24. Hansen, B. E. (2000). Sample Splitting and Threshold Estimation. Econometrica, 68(3), 575-603. Doi: 10.1111/1468-0262.00124
25. Hatemi-J, A., Chang, T., Chen, W-Y., Lin, F-L. and Gupta, R. (2018). Asymmetric Causality Between Military Expenditures and Economic Growth in Top Six Defense Spenders. Qual Quant, 52,1193-1207. Doi: 10.1007/s11135-017-0512-9
26. Heo, U. and Ye, M. (2016). Defense Spending and Economic Growth Around the Globe: The Direct and Indirect Link. International Interactions, 42(5), 774-796. Doi:10.1080/03050629.2016.1149067
27. Heo, U. (1998). Modelling the Defence-Growth Relationship Around the Globe. Journal of Conflict Resolution, 42, 637-657.
28. Heo, U. (2010). The Relationship Between Defense Spending and Economic Growth in the United States. Political Research Quarterly, 63(4), 760-770.
29. Hou, N. and Chen, B. (2013). Military Expenditure and Economic Growth in Developing Countries: Evidence From System GMM Estimates. Defence and Peace Economics, 24(3), 183-193. Doi: 10.1080/10242694.2012.710813
30. Karadam, D.Y., Yıldırım, J. and Öcal, N. (2016). Military Expenditure and Economic Growth in Middle Eastern Countries and Turkey: A Non-Linear Panel Data Approach. Defence and Peace Economics, 28(6), 719-730. Doi: 10.1080/10242694.2016.1195573
31. Karagöl, E. and Palaz, S. (2004). Does Defence Expenditure Deter Economic Growth in Turkey? A Cointegration Analysis. Defence and Peace Economics, 15(3), 289-298. Doi:10.1080/10242690320001608908
32. Keho, Y. (2017). The Impact of Trade Openness on Economic Growth: The Case of Cote d’Ivoire. Cogent, Economics & Finance, 5(1), 1-14.
33. Khan, H. U. R., Zaman, K., Islam, T., Yousaf, S.U., Nassani, A. A., Khan, A., Mustaffa, M. S., Ahmad, J., Hishan, S. S. and Aamır, A. (2018). Does Higher Military Spending Affect Business Regulatory and Growth Specific Measures? Evidence from the Group of Seven (G‑7) Countries. Economia Politica, 5:1, 1332820. Doi:10.1007/s40888-018-0131-5
34. Khilji, N. M. and Mahmood, A. (1997). Military Expenditures and Economic Growth in Pakistan. The Pakistan Development Review, 36(4), 791-808.
35. Kollias, C., Mylonidis, N. and PALEOLOGOU, S-M. (2007). A Panel Data Analysis of the Nexus Between Defence Spending and Growth in the European Union. Defence and Peace Economics, 18, 75-85. Doi: 10.1080/10242690600722636
36. Krueger, A.O. (1978). Liberalization Attempts and Consequences, Cambridge, MA: Ballinger.
37. Künü, S., Hopoglu,S. and Bozma, G. (2016). Conflict, Defense Spending and Economic Growth in the Middle East: A Panel Data Analysis. International Journal of Economics and Financial Issues, 6(1), 80-86.
38. Lai, C-C, Shieh, J-Y. and CHANG, W-Y. (2002). Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis. Defence and Peace Economics, 13(3), 179-186. Doi: 10.1080/10242690210975
39. Levin, A,, Lin, C-F. and Chu, C-S. J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108, 1-24. Doi: 10.1016/S0304-4076(01)00098-7
40. Lucas, R. E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42.
41. Macnair, E.S., Murdoch, J.C., Pi, C-R. and Sandler, T. (1995). Growth and Defense: Pooled Estimates for the NATO Alliance, 1951–1988. Southern Economic Journal, 61, 846-860.
42. Mueller, M.J. and Atesoglu, H.S. (1993). Defense Spending, Technological Change and Economic Growth in the United States. Defense Economics, 4, 259-269. Doi: 10.1080/10430719308404765
43. Mylonidis, N. (2008). Revisiting the Nexus Between Military Spending And Growth in the EU. Defence and Peace Economics, 19(4), 265-272. Doi: 10.1080/10242690802164801
44. Ncanywa, T. and Makhenyane, L. (2016). Can Investment Activities in the form of Capital Formation Influence Economic Growth in South Africa?. SAAPAM Limpopo Chapter 5th Annual Conference Proceedings, 270-279.
45. Ram, R. (1986). Government Size and Economic Growth: A New Framework and Some Evidence from Cross Section and Time Series Data. American Economic Review, 76(1), 191-203.
46. Romer, P. M. (1986). Increasing Returns and Long-Run Growth. The Journal of Political Economy, 94(5), 1002-1037.
47. Saba, C. S. and Ngepah, N. (2019). Military Expenditure and Economic Growth: Evidence from a Heterogeneous Panel of African Countries. Economic Research-Ekonomska Istraživanja, 32(1), 3586-3606. Doi: 10.1080/1331677X.2019.1674179
48. Stewart, D.B. (1991). Economic Growth and the Defense Burden in Africa and Latin America: Simulations from a Dynamic Model. Economic Development and Cultural Change, 40, 189-207.
49. Swamy, P.A.V. and Arora, S.S. (1972). The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models. Econometrica, 40, 261-275.
50. Thornton, J. (1996). Cointegration, Causality and Export-Led Growth in Mexico. 1895-1992. Economics Letters, 50(3), 413-416. Doi: 10.1016/0165-1765(95)00780-6
51. Tiwari, A., and Shahbaz, M. (2013). Does Defense Spending Stimulate Economic Growth in India? A Revisit. Defence and Peace Economics, 24(4), 371-395. Doi: 10.1080/10242694.2012.710814
52. Toda, H.Y. and Yamamoto, T. (1995). Statistical Inferences in Vector Autoregressions with Possibly Integrated Processes. Journal of Econometrics, 66, 225-250. Doi: 10.1016/0304-4076(94)01616-8
53. Topcu, M. and Aras, İ. (2015). Defense Spending and Economic Growth: Extended Empirical Analysis for the European Union. Defence and Peace Economics, 26(2), 233-246. Doi: 10.1080/10242694.2013.774771
54. Töngür, Ü. and Elveren, A.Y. (2017). The Nexus of Economic Growth, Military Expenditures, and Income Inequality. Qual Quant, 51, 1821–1842. Doi: 10.1007/s11135-016-0368-4
55. Ward, Md., Davis, D., Panubarti, M., Rajmaria, S. and Cochran, M. (1991). Country Survey I: Military Spending in India. Defence Economics, 3(1), 41-63. Doi: 10.1080/10430719108404714
56. Yakovlev, P. (2007). Arms Trade, Military Spending, and Economic Growth. Defence and Peace Economics, 18(4), 317-338. Doi: 10.1080/10242690601099679
57. Yıldırım, J. and Öcal, N. (2016). Military Expenditures, Economic Growth and Spatial Spillovers. Defence and Peace Economics, 27(1), 87-104
58. Yıldırım, J., Sezgin, S. and Öcal, N. (2005). Military Expenditures, Economic Growth in Middle Eastern Countries: A Dynamic Panel Data Analysis. Defence and Peace Economics, 16(4), 283-295. Doi: 10.1080/10242690500114751
59. Zhong, M., Chang, T., Goswami, S., Gupta, R., and 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), 609-620. Doi: 10.1080/10242694.2016.1144897