New Evidence for Romania Regarding Dynamic Causality between Military Expenditure and Sustainable Economic Growth

Ran Tao, Oana Ramona Glonț, Zheng-Zheng Li, Oana Ramona Lobonț and Adina Alexandra Guzun
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Ran Tao: Qingdao Municipal Center for Disease Control and Prevention, Qingdao 266000, China
Oana Ramona Glonț: Doctoral School of Economics and Business Administration, West University of Timisoara, Timișoara 300223, Romania
Zheng-Zheng Li: Department of Finance, Ocean University of China, 238 Songling Rd, Qingdao 266100, China
Oana Ramona Lobonț: Finance Department, Faculty of Economics and Business Administration, West University of Timisoara, Timisoara 300223, Romania
Adina Alexandra Guzun: Doctoral School of Economics and Business Administration, West University of Timisoara, Timișoara 300223, Romania

Sustainability, 2020, vol. 12, issue 12, 1-13

Abstract: Military spending and sustainable economic development have been widely discussed in recent decades. Especially in Romania, the defense budget is valued at $4.8 billion, registering a compound annual growth rate (CAGR) of 23.57%. It is also expected to reach $7.6 billion in 2023, according to a report by Strategic Defense Intelligence. There is no consensus in current research and less attention is paid to Eastern European countries. Considering the significant increase in military spending in Romania in recent years, as well as the occurrence of political events, this paper focuses on the dynamic causal relationship between military spending and sustainable economic growth in Romania. The bootstrap rolling window causality test takes into account the structural changes, and therefore, provides more convincing results. The results indicate negative effects of military expenditure on sustainable economic growth between 1996–1999 and 2002–2004. It can be attributed to the crowding-out effect of public expenditure on private investment. The positive effect between the two variables analyzed is noticed with the accession of Romania to the North Atlantic Treaty Organization. Conversely, it is found that economic growth does not have a significant effect on military spending in Romania. Policymakers should guard against the crowding out of private consumption and investment due to excessive military spending and ensure to increase military expenditure on the premise of sustainable economic development.

Keywords: military expenditure; economic growth; sustainable development; bootstrap rolling-window Granger; crowding-out effect (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:12:p:5053-:d:374356

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