Foreign aid fungibility and military spending: The case of North Cyprus

Mete Feridun

Defence and Peace Economics, 2014, vol. 25, issue 5, 499-508

Abstract: The present article examines if the foreign aid to North Cyprus is fungible and if it is in a long-run equilibrium relationship with military spending using the Autoregressive Distributed Lag bounds testing procedure from 1977 to 2007. The results suggest that neither tax revenues nor public expenditures are in a long-run equilibrium relationship with foreign aid. However, strong evidence emerges that defence expenditures are in a long-run equilibrium relationship with foreign aid, and that the latter seem to cause the former.

Date: 2014
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DOI: 10.1080/10242694.2013.763628

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