Does Defence Spending Stimulate Economic Growth in India?

Aviral Tiwari and Muhammad Shahbaz

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of present is to reinvestigate the effect of defence spending on economic growth using Zivot and Andrews (1992) and Lee and Strazicich, (2003) structural unit root tests and ARDL bounds testing approach to cointegration in augmented version of Keynesian model for Indian economy. Our analysis confirmed long run relationship between the variables and, results indicated positive effect of defence spending on economic growth (also negative impact after a threshold point). Investment and trade openness stimulate economic growth while economic growth is inversely affected by interest rate. Granger causality analysis showed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach.

Keywords: Defence Spending; Economic Growth; Cointegration (search for similar items in EconPapers)
JEL-codes: B22 (search for similar items in EconPapers)
Date: 2011-01-03, Revised 2011-04-18
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (6)

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