Menu Expand

Cite JOURNAL ARTICLE

Style

Bellos, S (2019). Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach. Applied Economics Quarterly, 65(3), 139-187. https://doi.org/10.3790/aeq.65.3.139
Bellos, Sotirios K. (2019). "Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach" Applied Economics Quarterly, vol. 65no. 3, 2019 pp. 139-187. https://doi.org/10.3790/aeq.65.3.139
Bellos, S (2019). Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach. Applied Economics Quarterly, Vol. 65 (Issue 3), pp 139-187. https://doi.org/10.3790/aeq.65.3.139

Format

Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach

Bellos, Sotirios K.

Applied Economics Quarterly, Vol. 65 (2019), Iss. 3 : pp. 139–187

Additional Information

Article Details

Pricing

Author Details

Bellos, Dr. Sotirios K., University of Sheffield, International Faculty, City College, Business Administration and Economics Department, 3, Leontos Sofou Street, Thessaloniki, 54626, Greece; National Bank of Greece, Mid-Corporate Special Assets Unit.

References

  1. Agostino, G. / Dunne, J. P. / Pieroni, L. (2012): “Corruption, Military Spending and Growth”, Defense and Peace Economics, 236, 591–604, doi:10.1080/10242694.2012.663579.  Google Scholar
  2. Ahmed, A. D. (2012): “Debt-Burden, military spending and growth in Sub-Saharan Africa: A dynamic panel data analysis”, Defence and Peace Economics, 235, 485–506.  Google Scholar
  3. Aizenmann, J. / Glick, R. (2003): “Military Expenditure, threats, and growth”, NBER Working Paper 9618.  Google Scholar
  4. Aizenmann, J. / Glick, R. (2006): “Military Expenditure, threats, and growth”, Journal of International Trade & Economic Development, 152, 129–155, doi: 10.1080/09638190600689095.  Google Scholar
  5. Alami, R. (2002): “Military Debt: Perspectives from the Experience of Arab Countries”, Defense and Peace Economics, 131, 13–30.  Google Scholar
  6. Alexander, W. R. J. (1995): “Defence Spending: Burden or Growth – Promoting?”, Defence and Peace Economics, 62, 13–25.  Google Scholar
  7. Alexander, W. R. J. (2012): “The Defence-Debt nexus: Evidence from the high-income members of NATO”, Defence and Peace Economics, 242, 133–145.  Google Scholar
  8. Alguacil, M. / Cuadros, A. / Orts, V. (2004): “Does Saving Really Matter for Growth? Mexico (1970–2000)”, Journal of International Development, 16, 2.  Google Scholar
  9. Antonakis, N. (2002): Εφαρμογές Οικονομικών της Άμυνας στην Ελληνική Οικονομία, Εκδό-σεις Παπαζήση, Athens.  Google Scholar
  10. Atesoglu, H. S. / Mueller, M. J. (1990): “Defense Spending and Economic Growth”, Defence Economics, 21, 19–27.  Google Scholar
  11. Ball, N. (1983): “Defense and Development: A Critique of the Benoit study”, Economic Development and Cultural Change, 31 April: 507–524.  Google Scholar
  12. Barbone, L. / Zalduendo, J. (1996): EU Accession and Economic Growth. The Challenge for Central and Eastern European Countries, World Bank.  Google Scholar
  13. Bellos, S. K. (2019): “Natural Resources, Energy Dependency and their association with Institutional and Growth – related variables in the Black Sea and Southeast European region”, Applied Economics Quarterly, 65, 1, 1–43, DOI: https://doi.org/10.3790/aeq.65.1.1.  Google Scholar
  14. Benoit, E. (1972): “Growth effects of defense in developing countries”, International Development Review, 14, 1,2–10.  Google Scholar
  15. Benoit, E. (1973): Defense and Economic Growth in Developing Countries, Lexington: Lexington Books.  Google Scholar
  16. Benoit, E. (1978): “Growth and defense in developing countries”, Economic Development and Cultural Change, 26 January: 271–280.  Google Scholar
  17. Berteau, D./ Cipoletti, T. J. / Sanders, G. / Doherty, M. / Fanlo, A. (2015): “European Defense Trends: Briefing Update”, Center for Strategic and International Studies, National Security Program on Industry and Resources.  Google Scholar
  18. Bing-Fu, C. / Liming, Z. (2006): “The determinants of China’s defense expenditure before and after transition”, Conflict Management and Peace Science, 23, 227–44 doi:10.1080/07388940600837730.  Google Scholar
  19. Blank, S. (2008): “The Strategic Importance of Central Asia: An American View”, Parameters, 38 (1), 73–87.  Google Scholar
  20. Brzezinsky, Z. (1997): The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, Basic Books, New York.  Google Scholar
  21. Brzoska, M. (1983): “The Military Related External Debt of Third World Countries”, Journal of Peace Research, 203, 271–277.  Google Scholar
  22. Cappelen, A. / Gleditsch, N. P. / Bjerkholt, O. (1984): “Military spending and economic growth in the OECD countries”, Journal of Peace Research, 214, 827–838.  Google Scholar
  23. Chan, S. (1985): “The Impact of Defense Spending on Economic Performance: A Survey of Evidence and Problems”, Orbis, 293, 403–34.  Google Scholar
  24. Chang, T. / Fang, W. / Wen, L. F. (2001): “Defense spending, economic growth and temporal causality: evidence from Taiwan and Mainland China, 1952–1995”, Applied Economics, 33, 1289–99, doi:10.1080/00036840122529.  Google Scholar
  25. Chang, T. / Lee, C. C. / Hung, K. / Lee, K. H. (2013): “Does Military Spending Really Matter for Economic Growth in China and G7 countries: The Roles of Dependency and Heterogeneity”, Defence and Peace Economics, 252, 177–191, doi: 10.1080/10242694.2013.763460.  Google Scholar
  26. Chen, C. H. (1993): “Causality between defense spending and economic growth: The case of Mainland China”, Journal of Economic Studies, 20, 37–43, doi:10.1108/01443589310048145.  Google Scholar
  27. Chen, A. (2009): “Thirty years of Chinese Reform – Transition from Planned Economy to Market Economy”, Asian Social Science, 53, 52–56.  Google Scholar
  28. Chen, S. / Feffer. J. (2009): “China’s Military Spending: Soft Rise of Hard Threat?”, Asian Perspective, 334, 47–67.  Google Scholar
  29. Chletsos, M. / Kollias, C (1995): “Defense Spending and growth in Greece 1974–1990: some preliminary econometric results“, Applied Economics, 27, 883–890.  Google Scholar
  30. Chowdbury, A. R. (1991): “A Causal Analysis of Defense Spending and Economic Growth”, Journal of Conflict Resolution, 351, 73–113.  Google Scholar
  31. Chun, C. K. (2010): “Do Oil Exports Fuel Defense Spending?”, Strategic Studies Institute, Carlisle.  Google Scholar
  32. CIA, (1975): “The Economic Impact of Soviet Military Spending”, Intelligence Report, ER-IR 75–3, https://www.cia.gov/library/readingroom/docs/DOC_0000380724.pdf.  Google Scholar
  33. Comunale, M. (2017): “A Panel VAR Analysis of macro-financial imbalances in the EU”, ECB Working Paper Series, No 2026.  Google Scholar
  34. De Nicolo, G. / Geadah, S. / Rozhkov, D. (2003): “Financial Development in the CIS-7 Countries: Bridging the Great Divide”, IMF Working Paper, WP/03/ 205.  Google Scholar
  35. Deger, S. (1981): “Human Resources, Government Education Expenditure and the Military Burden in Less Developed Countries”, London Birkbeck College Discussion Paper, No 109.  Google Scholar
  36. Deger, S. / Smith, S. (1983): “Military Expenditure and growth in less developed countries”, Journal of Conflict Resolution, 282, 335–353.  Google Scholar
  37. DeGrasse, R. W. (1983): Military Expansion, Economic Decline, M.E Sharpe Inc, Armonk, NY.  Google Scholar
  38. Dimitraki, O. / Menla Ali, F. (2013): “The Long-run Causal Relationship between Military Expenditure and Economic Growth in China: Revisited”, Defence and Peace Economics, doi:10.1080/0242694.2013.810024.  Google Scholar
  39. Dixon, W. / Moon, B. (1986): “The Military Burden and Basic Human Needs”, Journal of Conflict Resolution, 30, 660–684.  Google Scholar
  40. Domar, E. (1946): “Capital Expansion, Rate of Growth and Employment”, Econometrica, 142, 137–147.  Google Scholar
  41. Dunne, J. P. (2003): “Military Expenditure and Debt in Small Industrialized Economies: A Panel Analysis”, Defense and Peace Economics, 152, 125–132.  Google Scholar
  42. Dunne, J. P. / Nikolaidou, E. / Mylonidis, N. (2003): “The demand for military spending in the peripheral economies of Europe”, Defence and Peace Economics, 146, 447–460, DOI:10.1080/1024269032000085215.  Google Scholar
  43. Dunne, J. P. / Smith, R. (1990): “Military Expenditure and Unemployment in the OECD”, Defence Economics, 1, 57–74.  Google Scholar
  44. Dunne, J. P., / Vougas, D. (1999): “Military spending and economic growth in South Africa”, Journal of Conflict Resolution, 434, 521–537.  Google Scholar
  45. Frederiksen, P. C. / Looney, R. E. (1983): “Defense Expenditures and Economic Growth in Developing Countries”, Armed Forces and Society, 9: 633–645.  Google Scholar
  46. Furuoka, F. / Mikio, O. / Karim, M. A. (2014): “Military Expenditure and Economic Development in China: An Empirical Enquiry”, Defence and Peace Economics, doi: 10.1080/10242694.2014.898383.  Google Scholar
  47. Gidadhubli, R., G. (2013): “Eurasian Economic Union: Russia’s Quest to Re-Emerge as a Major Global Power”, The IUP Journal of International Relations, 7 (1), 36–44.  Google Scholar
  48. Gleditsch, N. P. P. / Wallensteen, M. / Eriksson, M. / Sollenberg / Strand, H. (2002): “Armed Conflict 1946–2001: A New Dataset”, Journal of Peace Research, 395: 615–637.  Google Scholar
  49. Gunluk – Senesen, G. / Sezgin, S. (2002): “Turkey’s defence expenditures and debt burden”, Paper presented at the 6th Middlesex Conference on Economics and Security, June 2002, London.  Google Scholar
  50. Harrod, R. F. (1939): “An Essay in Dynamic Theory”, The Economic Journal 49 193, 14–33.  Google Scholar
  51. Haveman, J. D. / Deardorff, A. V. / Stern, R. M. (1991): “Some Economic Effects of Unilateral and Multilateral Reductions in Military Expenditures in the Major Industrialized and Developing Countries”, Research Seminar in International Economics, Seminar Discussion Paper No 270.  Google Scholar
  52. Heo, U. (2000): “The Defence – Growth Nexus in the United States Revised”, American Politics Quarterly, 281, pp 110–127.  Google Scholar
  53. Iimi, A. (2005): “Urbanization and Development of Infrastructure in the East Asian Region”, Japan Bank for International Cooperation, 10, 88–109.  Google Scholar
  54. Joerding, W. (1986): “Economic Growth and Defense Spending: Granger Causality in Developing Countries”, Journal of Development Economics, 21, 35–40.  Google Scholar
  55. Kalaitzidakis, P. / Tzouvelekas, V. (2011): “Military spending and the growth-maximizing allocation of public capital: a cross-country empirical analysis”, Economic Inquiry, 49, 1029–1041, doi: 10.1111/j.1465–7295.2009.00242.x.  Google Scholar
  56. Karnaukhova, O. / Udovikina, A. / Christiansen, B. (2018): Economic and Geopolitical Perspectives of the Commonwealth of Independent States and Eurasia (Advances in Electronic Government, Digital Divide, and Regional Development), IGI Global, Hershey.  Google Scholar
  57. Kennedy, G. (1974): The Military in the Third World, London: Duckworth.  Google Scholar
  58. Kollias, C. / Manolas, G. / Paleologou, S. Z. (2004): “Defense Expenditure and economic growth in the European Union: A causality analysis”, Journal of Policy Modeling, 265, 553–569.  Google Scholar
  59. Kugler, T. / Kang, K. K. / Kugler, J. / Arbetman-Rabinowitz, M. (2012): “Demographic and Economic Consequences of Conflict”, International Studies Quarterly, 1–12, doi: 10.1111/isqu.12002.  Google Scholar
  60. Kurmanalieva, E. / Fedorov, K. (2011): “CIS Countries: Primary Macroeconomic Indicators”, Eurasian Development Bank, Data and Reviews.  Google Scholar
  61. Kusi, N. K. (1994): “Economic Growth and defense spending in developing countries: A causal analysis”, Journal of Conflict Resolution, 381, pp. 152–159.  Google Scholar
  62. Landau, D. (1993): “The Economic Impact of Military Expenditures”, The World Bank, Policy Research Working Papers, WPS 1138.  Google Scholar
  63. Looney, R. E. (1995): “Defense Expenditure and Savings in Pakistan: Do Allocations to the Military reduce National Savings?”, Savings and Development, 19 (2), 213–230.  Google Scholar
  64. Looney, R. E. / Frederiksen, P. C. (1986): “Defense Expenditure, External Public Debt and Growth in Developing Countries”, Journal of Peace Research, 234, 329–338.  Google Scholar
  65. Mackinder, H. J. (1904): “The Geographical Pivot of History”, The Geographical Journal, 23 (4), 421–437.  Google Scholar
  66. Maizels, A./ Nissanke, M (1986): “The Determinants of Military Expenditures in Developing Countries”, World Development, 149, 1125–1140.  Google Scholar
  67. Malizard, J. / Droff, J. (2014): “Economic versus Strategic Constraint: The asymmetric behavior of defense spending in France”, Document de travail ART-Dev 2014-09.  Google Scholar
  68. Masih, A. M. M. / Masih, R. / Hasan, M. S. (1997): “New evidence from an alternative methodological approach to the defense spending-economic growth causality issue in the case of Mainland China”, Journal of Economic Studies, 24, 123–40. doi:10.1108/01443589710167347.  Google Scholar
  69. McDonald, B. D. / Eger, R. (2010): “The Defense-Growth Relationship: An Economic Investigation into Post-Soviet States”, Peace Economics, Peace Science and Public Policy, 161, Article 5, 1–26.  Google Scholar
  70. Meng, B. / Lucyshyn, W. / Li, X. (2013): “Defence Expenditure and Income Inequality: Evidence on Co-Integration and Causality for China”, Defence and Peace Economics, 1–14, doi: 10.1080/10242694.2013/810026.  Google Scholar
  71. Menla Ali, F. / Dimitraki, O. (2014): “Military Spending and Economic Growth in China: A Regime – Switching Analysis”, Applied Economics, 4628: 3408–3420, doi: 10.108/00036846.2014.929626.  Google Scholar
  72. Ohanian, L. E. (1997): “The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War”, American Economic Review, 871, 23–40.  Google Scholar
  73. Ouyang, Y, / Li, P. (2018): “On the nexus of financial development, economic growth, and energy consumption in China: New perspective from a GMM panel VAR approach”, Energy Economics, 71, 238–252.  Google Scholar
  74. Paleologou, S-M. (2013): “A Dynamic Panel Data Model for analyzing the relationship between military expenditure and government debt in the EU”, Defence and Peace Economics, 245, 419–428.  Google Scholar
  75. Pesaran, M., (2004): “General Diagnostic Tests for Cross Section Dependence. in Panels”, Cambridge Working Papers in Economics no. 435 and CE-. Sifo Working Paper Series no. 1229, University of Cambridge, Cambridge, United Kingdom.  Google Scholar
  76. Pradhan, R. P. (2010): “Defence spending and economic growth in China, India, Nepal and Pakistan: Evidence from Cointegrated Panel Analysis”, International Journal of Economics and Finance, 12, 65–74.  Google Scholar
  77. Rapacki, R. / Prochniak, M. (2009): “The EU Enlargement and Economic Growth in the CEE New Member Countries”, European Commission Economic Papers, EP 367.  Google Scholar
  78. Shostya, A. (2014): “The Effect of the Global Financial Crisis on Transition Economies”, Atlantic Economic Journal, 433, 317–332, doi: 10.1007/s11293-014-9418-2.  Google Scholar
  79. Singh, T. (2009): “Does Domestic Saving Cause Economic Growth? A Time-Series Evidence from India”, Journal of Policy Modeling, 32, 2.  Google Scholar
  80. SIPRI. (2012): Military Expenditure Database, 2012, http://milexdata.sipri.org“.  Google Scholar
  81. Smith, R. P. (1977): “Military Expenditures and Capitalism”, Cambridge Journal of Economics, 1–16.  Google Scholar
  82. Solow, R. M. (1956): “A Contribution to the Theory of Economic Growth”, Quarterly Journal of Economics, 70 1, 65–94. doi:10.2307 / 1884513.  Google Scholar
  83. Themnér, L. / Wallensteen, P. (2013): “Armed Conflict, 1946–2012”, Journal of Peace Research, 504.  Google Scholar
  84. UCDP/PRIO. (2013): UCDP/PRIO Armed Conflict Dataset Codebook, Centre for Study of the Civil Wars, International Peace Research Institute, 4–2013.  Google Scholar
  85. Verner, J. G. (1983): “Budgetary trade-offs between education and defense in Latin America: A research note”, Journal of Developing Areas, 181.  Google Scholar
  86. Wolfson, M. (1985): “Notes on economic warfare”, Conflict Management and Peace Science, 82, 1–20.  Google Scholar
  87. Wolfson, M. (1989): “Foundations of a theory of economic warfare and arms control”, Conflict Management and Peace Science, 102, 47–75.  Google Scholar
  88. World Bank. (2013): World Development Indicators Database, World Bank, Washington, D.C.  Google Scholar
  89. Yang, A. J. F. / Trunbull, W. N. / Yang, C. W. / Huang, B-H. (2011): “On the relationship between Military Expenditure, Threat and Economic Growth: A nonlinear Approach”, Defense and Peace Economics, 224: 449–457.  Google Scholar
  90. Zatsepin, V. (2007): “Russian Military Expenditures: What’s Behind the Curtain?”, The Economics of Peace and Security, 21, 51–61, doi: 10.15355.2.1.51.  Google Scholar

Abstract

Abstract

The paper examines the relation between military expenditure and three growth and development related variables (GDP growth, GDP per capita growth and Industry Value Added growth) in 31 transition economies during the 1985–2018 period and in a series of different samples by applying the Panel VAR GMM methodology. The empirical results reveal different patterns of the significant association between military expenditure and the examined growth and development variables, which is positive for certain samples and negative for others. The causality analysis shows that in the vast majority of the cases, the causality direction runs from military expenditure towards the examined growth and development related variables. In addition, the analysis provides uniform evidence on certain positive impacts of defense expenditure on population growth and schooling and negative impacts on savings. The results from the Ex-Soviet Economies are of particular interest as the association between military expenditure and the examined growth-related variables, becomes positive. We interpret the results in the context of the wider characteristics of the particular geographical area.

JEL Classifications: H50, H56

Transition Economies, Transition, Military Expenditure, Economic growth, GDP per capita, Industry Value Added

Table of Contents

Section Title Page Action Price
Sotirios K. Bellos: Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach 1
Abstract 1
1. Introduction 1
2. Literature Review 2
3. Empirical Model and Analysis 6
4. Data and Econometric Methodology 8
4.1 Data 8
4.2 Panel VAR GMM Method 8
4.3 Causality Analysis 9
4.4 Missing Observations 9
4.5 Cross Sectional Dependence – Stationarity Tests 9
5. Empirical Results 1
6. Discussion 1
7. Conclusions 1
Appendix A 1
Appendix B 2
References 4