Effects of Defense Spending Changes on Economic Growth: A Nonlinear Cointegration Model and Asymmetric Causality Test for Turkey

Abstract

There have been various arguments claiming that defense spending has positive or negative effects on economic growth and there have been plenty of researches supporting these cross arguments. In this paper, the effect the defense spending on the economic growth within the period of 1960-2019 is being analyzed for Turkey. For this aim, nonlinear autoregressive distributed lag model (NARDL) has been estimated and Hatemi-J asymmetric causality test has been imposed. The effects of the increases or decreases in defense spending on economic growth are decomposed by using these methods. The results derived from the NARDL estimations and asymmetric causality test supported that there are asymmetric effects of the changes in defense spending on economic growth. Both methods indicated that increase in defense spending does not have any effect on growth and decrease in defense spending has significant effect on growth. Besides, the resulting long run elasticities suggested that decrease in defense spending has the positive effect on the economic growth for the sample period.