Military Spending Is for Prosperity & Growth: An Analysis of Different Income Level Countries

Abstract

The study illuminates the linkages between military spending and economic growth through a cross-country dataset of 67 countries from 1990 to 2018. The full sample is divided into three sub-groups namely high-income, middle-income, and low-income countries to check the consistency of our findings. It has already been documented in various studies that the sensitivities associated with military spending sometimes relaxed the obligation to justify the need for a specific threat to a country. It is, however, more convincing and ethically justified if the military spending is aligned with broader national interests. In the full sample as well as in the sub-sample groups, we have found a positive relationship between military spending and economic growth.

The Fisher and the Kao cointegration tests indicate a long-run relationship, and the Dumitrescu and the Hurlin causality test indicate the existence of bidirectional causality. The cross-section dependence test rejected the null hypothesis and suggested a long-run relationship. The Hausman test supported fixed effect regression and cointegrating results of fully modified ordinary least squares and dynamic ordinary least squares were used to find out the long-run coefficients.

It would be more appropriate if the same relationship is tested country-wise while taking country-specific factors into account before making decisions regarding major changes in military spending. This study would serve as a baseline for all such studies.