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Defence Spending and Economic Growth in South Africa: Evidence from Cointegration and Co-Feature Analysis

Saba Charles Shaaba ()
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Saba Charles Shaaba: School of Economics, College of Business and Economics, University of Johannesburg, Auckland Park Kingsway Campus, PO Box 524 Auckland Park, Johannesburg, South Africa

Peace Economics, Peace Science, and Public Policy, 2022, vol. 28, issue 1, 51-100

Abstract: The paper revisits the causality relationship between defence spending and economic growth for South Africa during the period 1960–2018. The results of our estimation show that defence spending and economic growth are cointegrated and that there is bidirectional Granger causality running between defence spending and economic growth in the long run. We then applied a Hodrick-Prescott filter to decompose the trend and the fluctuation components of the defence spending and economic growth series. The findings from the autoregressive distributed lag bounds test estimations show that in the long- and short-run, the trends and cyclicality of defence spending retard economic growth. The estimation results show that there is cointegration between the trends and the cyclical components of the two series, which suggests that the Granger causality possibly relates to the business cycle. This study suggests that investing more and reducing inefficiency spending in the defence sector during fluctuations can further stimulate economic growth in South Africa.

Keywords: defence spending; economic growth; Granger causality; Hodrick-Prescott (HP) filter; South Africa (search for similar items in EconPapers)
JEL-codes: C32 H56 O47 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/peps-2021-0017

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