Does Military Spending Crowd-Out Domestic Investment? Evidence from Nigeria

Abstract

The growing level of social unrests in Nigeria has compelled the Nigerian government to increase its military spending in recent decades. This has several implications for macroeconomic stability in Nigeria. However, the effect of this expansionary fiscal policy on domestic investment in Nigeria has not been established empirically. Thus, this study answers the question of whether or not military spending crowd-out domestic investment in Nigeria. Annual time series data spanning 1981-2021 and the autoregressive distributed lag (ARDL) estimator were used to provide answer to this research question. The results of the short-run and long-run analysis answers the question in the affirmative as military expenditure was found to negatively impact domestic investment in Nigeria. Therefore, the Nigerian government and policymakers are urged to devise pragmatic and cost-effective ways to tackle social unrests and reduce military spending, which have been a clog in the wheel of investment expenditure in the country.