Military spending as another cause of the failure of the PPP
Mohsen Bahmani-Oskooee () and
Gour Goswami ()
Applied Economics Letters, 2005, vol. 12, issue 11, 663-667
In a recent article, with a strong theoretical argument but poor empirical support, military spending was identified to be a determinant of real exchange rate or a factor causing the PPP to deviate from equilibrium exchange rate. The poor empirical results were mostly due to a small number of observations (21 cross-sectional). This article employs pooled data from across 37 developing countries over the 1985-1998 period and provides very strong empirical support for the notion that indeed increased military spending could cause the PPP to deviate from equilibrium exchange rate.
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