Revisiting the Relationship between Military Expenditure and Economic Growth in Pakistan

Abstract

This study aims to examine relationship of military expenditure and economic growth in different phases of military regimes in the context of Pakistan. This study uses two-state Markov switching models with Constant Transition Probability (CTP) and Time Varying Transition Probabilities (TVTP) for the time period: 1973-2014. This investigation analyses two sorts of relations between military expenditures and economic development through fixed transition probability Markov exchanging models. To begin with, there is negative connection between GDP growth and military expenditures during a high variance state (i.e. having low economic growth). Second, there is positive relation between both variables, during low variance state (i.e. having higher economic growth) which is also supported by idea of Keynesian income multiplier. Another, empirical test of time varying transition probability model was used to capture the switch through indicator variable. Results of the study suggest that chances of switching are increased from low to high economic growth. The chances of switching increase from lower to higher economic growth period (or high variance period) if non-military expenditure increases. The study concludes that military expenditure and economic growth are state dependent. If conditions of economy are stable then increase of expenditure results in positive outcomes, otherwise, it affects negatively. Empirical findings suggest that military spending should be planned in accordance to the economic performance of the country.

The Causal Relationship between Military Expenditure and Economic Growth in Egypt during the period from 1980 to 2019

“…produced contradictory results that were influenced by different economic strengths and the amounts allocated to military expenditure. From studying South Asian countries and, more specifically, Sri Lanka, Bangladesh and Nepal, Ismail's (2017) findings show that the relationship between the variables depends on the country's economic capability. This study's findings show, also, that the resources allocated for capital formation activities, have had a four times growth rate when compared to military expenditure.…”

“…Some of the countries show no relationship between the two variables. From conducting a study in Pakistan, which is in the same region, Qureshi and Khan (2017) analyzed the relationship between military expenditure and economic growth. According to the authors, the relationship between these two variables depends on the analysis of both the direct and indirect total costs and the overall benefits.…”

“…According to Zhao et al (2017), military expenditure includes economic resources directed towards peacekeeping, military operations, personnel salaries, pensions and benefits attributed to the role of the military; research and development in the field; and military aid to other countries. To determine the level of economic growth, all components of government expenditure must be taken into consideration (Qureshi & Khan, 2017). Different authors have expressed, also, their views on the relationship between military expenditure and economic growth.…”