The Interrelationship between Military Expenditure and External Debt: Patterns of Causation in Northern Africa Countries

Abstract

It is supported by academics and scholars that defense expenditure can significantly affect a country's economic growth and in some cases it influences external debt having implications in various macroeconomic indicators. However, relevant empirical studies have produced contradictory evidence while the literature in this field remains relatively poor. In this spirit, this survey investigates the causal links between military expenditure and external debt for four emerging Northern Africa countries (i.e. Egypt, Tunisia, Algeria and Morocco) during the period 1988-2009. Empirical findings on the long-term relationship between the tested variables are based on cointegration test. The Granger Causality test results using Vector Auto Regression (VAR) estimates and the Error Correction Model imply that there is no dynamic causal link between military expenditure and external debt for Tunisia, Algeria and Morocco. On the other hand regarding Egypt, results imply that a strong unidirectional causality exists running from defense expenditure to external debt. Collectively, empirical calculations show that military burden do not have any significant impact on most Northern Africa countries. The only exception is the case of Egypt; empirical results show that military expenditure robustly affect the country's external debt. These are the only findings provided from this study that validate the hypothesis that military burden may be important in determining the evolution of debt in developing countries.

Analyzing the Influence of Foreign Debt on Non-Oil Economic Growth: A Case Study of Iraq Using the Autoregressive Distributed Lag (ARDL) Model from 2003 to 2022

“…Empirical results show that military spending strongly affects a country's external debt. These are the only results provided by this study that validate the hypothesis that the military burden may be important in determining the evolution of debt in developing countries (Georgantopoulos 2011).…”

“…This study (Georgantopoulos 2011) examines the causal links between military spending and external debt of four emerging countries in North Africa (i.e. Egypt, Tunisia, Algeria, and Morocco) during the period 1988-2009.…”

“…standard economic model was constructed for use in the study, employing the Cobb-Douglas production function in Equation (1) ( 1 ................ ) 𝐿 𝛽 GDP=A𝐾 𝛼 After taking the logarithm for both sides of the above equation, we obtain: Ln GDP= LnA+LnαK+Lnβ L………..(2)The model can be expanded by adding the element of external debt (de) to the model, and thus it becomes:Ln GDP= LnA+LnαK+Lnβ L+ Ln𝜃 𝑑𝑒………. (2). …”

Analyzing the impact of terrorism on tourism in Sri Lanka

“…The democratic government has more stability in military spending than the other. Some empirical studies indicated that military expenditure doesn't affect external debt, but this cannot be generalized to all countries as the outcome will differ between countries (Georgantopoulos & Tsamis, 2011). Mangır and Kabaklarlı (2016) indicate that military expenditure is neither good nor bad for the economy.…”

Defence expenditure and public debt in Greece: A non-linear relationship

“…They found no evidence that military burden had any impact on the evolution of debt in Argentina and Brazil, but some evidence that military burden tended to increase debt in Chile. Georgantopoulos and Tsamis (2011), using a cointegration test, investigated the causality between defence spending and external debt for four emerging Northern Africa countries (Morocco, Algeria, Tunisia and Egypt) during the period 1988-2009.…”