The Military Expenditures and Economic Growth Nexus: Panel Bootstrap Granger Causality Evidence from NATO Countries

Abstract

The purpose of this study is to examine the causal linkage between military expenditures and economic growth in 27 North Atlantic Treaty Organization (NATO) member countries. Different periods are studied due to the unavailability of data for the common period for all countries. Both the symmetric and the asymmetric causality between military expenditures and economic growth are investigated under cross-sectional dependence and panel heterogeneity by using the bootstrap panel Granger causality testing approach. The results indicate that there is both symmetric and asymmetric Granger- causality between military expenditures and economic growth, which vary from one country to another. The robust empirical findings support the military expenditures and economic growth nexus in 12 of the 27 NATO member countries. Moreover, the findings show that more empirical evidence between military expenditures and economic growth can be obtained when the asymmetric causality is considered, in addition to the symmetric causality. 

Keywords: Defense economics, Military expenditures, Economic growth, Asymmetric bootstrap Granger causality. 

JEL: C33, H50, H56, 047.