Does defence spending impede economic growth? cointegration and causality analysis for Pakistan

Muhammad Shahbaz, Talat Afza and Shahbaz Shabbir ()
Authors registered in the RePEc Author Service: Muhammad Shahbaz

MPRA Paper from University Library of Munich, Germany

Abstract: This study revisits the relationship between defence spending and economic growth using Keynesian model in Pakistan by applying ARDL bounds testing approach to cointegration for long run and error correction method for short span of time. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending retards the pace of economic growth confirming the validation of Keynesian hypothesis in the country. Current economic growth is positively linked with economic growth in previous period while rise in nonmilitary expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.

Keywords: Defence Spending; Economic Growth; Cointegration; Causality; Pakistan (search for similar items in EconPapers)
JEL-codes: B22 (search for similar items in EconPapers)
Date: 2011-01-26, Revised 2011-03-27
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: DOES DEFENCE SPENDING IMPEDE ECONOMIC GROWTH? COINTEGRATION AND CAUSALITY ANALYSIS FOR PAKISTAN (2013)
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