Military Expenditure and External Debt in South Asia: A Panel Data Analysis

Abstract

This study investigates the effect of military expenditure on the exploding external debt in five major South Asian economies, i.e. Pakistan, Bangladesh, India, Nepal and Sri Lanka from 1990 to 2015 using panel fixed effect regression model. The estimated result reveals that the external debt of selected South Asian countries is positively determined by their military expenditure, and negatively explained by their domestic investment activities. The study urges the efficient utilization of available capital resources into more productive investment activities to create employment for the labor force. The future prosperity of the region lies in the peaceful resolution of all outstanding disputes and a corresponding reduction in military spending that can make the region safe for domestic and international investments.

Workers’ Remittances and Domestic Investment in South Asia: A Comparative Econometric Inquiry

“…Lack of domestic capital formation with higher growth in the labour force has aggravated the unemployment level in many developing countries, Abbas (). The lack of domestic capital formation has resulted in considerable increased in external debt distress in selected South Asian countries, (Abbas and Wizarat, ). Investment is an important channel through which worker remittances can affect domestic productivity growth, Ratha ().…”

External Debt Distress in South Asia: Evidence from Panel Data Analysis

“…Among these gaps, the foreign exchange gap can correspondingly deplete foreign exchange reserves and/or increase external borrowing. Following Abbas and Wizarat (2018), the standard model constructed to explore the behaviour of external debt in selected South Asian countries is presented as follows: …”

“…The increase in gross capital formation enhances domestic production activities and income that reduces the need for external borrowing. Military spending, according to Abbas and Wizarat (2018) is a major determinant of exploding external debt distress in selected South Asian countries. These countries are massively increasing military expenditures due to regional conflicts.…”

“…Among available studies, Azam and Feng (2017) constructed a model to explain the effect of military spending on exploding external debt in Asia that incorporated GDP growth, total tax as percentage of GDP, inflation rate and foreign exchange reserves as explanatory variables. In more recent studies, Abbas and Wizarat (2018) constructed a model for external debt by augmenting a three-gap model with per capita GDP, gross capital formation, trade balance and military expenditure as explanatory variables. Besides these studies, we are not aware of any studies that address both social and economic determinants of external debt in the region.…”

Military Expenditure and Macroeconomic Perfromance – The Case of an Emerging Country

“…All over the world attention of development economists have been shifting towards researches on military expenditure in the recent years (Abbas & Wizarat, 2018;Odehnal, 2015). The reason behind this might not be unconnected to the fact the expenditure on the military usually constitute the largest chunk of total government expenditure in annual budgets of countries.…”