DOES DEFENCE SPENDING IMPEDE ECONOMIC GROWTH? COINTEGRATION AND CAUSALITY ANALYSIS FOR PAKISTAN

Muhammad Shahbaz, Talat Afza, Muhammad Shahbaz Shabbir

Research output: Contribution to journalArticlepeer-review

Abstract

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

Original languageEnglish (US)
Pages (from-to)105-120
Number of pages16
JournalDefence and Peace Economics
Volume24
Issue number2
DOIs
StatePublished - Apr 2013

Keywords

  • Causality
  • Cointegration
  • Defence spending
  • Economic growth
  • Pakistan

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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