Does Military Spending Explode External Debt in Pakistan?

Muhammad Shahbaz, Muhammad shahbaz Shabbir and Muhammad sabihuddin Butt
Authors registered in the RePEc Author Service: Muhammad Shahbaz

Defence and Peace Economics, 2016, vol. 27, issue 5, 718-741

Abstract: This paper investigates the effect of military spending on external debt in case of Pakistan for the period of 1973–2009. For this purpose, the autoregressive distributed lag bounds testing approach to cointegration is used to examine cointegration among the variables. The ADF, P-P, and ADF-GLS unit root tests are applied to test the integrating order of the variables. The Ordinary Least Square (OLS) and error correction method regressions are used to investigate the marginal impact of military spending on external debt in the long and short run. Our findings indicate the existence of cointegration that confirms the presence of a long-run relationship among military spending, external debt, economic growth, and investment. Further, our results reveal that a rise in military spending increases the stock of external debt; an increase in investment also increases external debt; however, there is an inverse effect of economic growth on external debt. An implication of the findings reported herein is that there is a need to formulate a comprehensive economic policy for curtailing external debt in case of Pakistan.

Date: 2016
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Citations: View citations in EconPapers (5)

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Working Paper: Does Military Spending Explode External Debt in Pakistan? (2011)
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DOI: 10.1080/10242694.2012.724878

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