Military expenditure, economic growth and structural instability : a case study of South Africa
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Date
Authors
Aye, Goodness Chioma
Balcilar, Mehmet
Dunne, John P.
Gupta, Rangan
Van Eyden, Renee
Journal Title
Journal ISSN
Volume Title
Publisher
Routledge
Abstract
This paper makes two contributions to the growing literature on the military expenditureeconomic
growth nexus. It provides a case study of a developing country, South Africa, and
considers the possibilities of structural breaks in the relationship, applying newly developed
econometric methods. Taking annual data from 1951 to 2010 and full sample bootstrap Granger
non-causality tests, initially we find no causal link between military expenditure and GDP. Then,
using parameter instability tests, the estimated VARs are found to be unstable. However, when a
bootstrap rolling window estimation procedure is used to deal with time variation in the
parameters, bidirectional Granger causality between the two series becomes evident in various
subsamples. While military expenditure has positive predictive power for GDP at certain initial
periods, it has negative predictive power at some later periods in the sample. Similar results were
obtained for the causality running from GDP to military expenditure. These findings illustrate
that conclusions based on the standard Granger causality tests, which neither account for
structural breaks nor time variation in the relationship may be invalid.
Description
Keywords
Military spending, Economic growth, Bootstrap, Time varying causality
Sustainable Development Goals
Citation
Aye, GC, Balcilar, M, Dunne, JP, Gupta, R & Van Eyden 2014, 'Military expenditure, economic growth and structural instability : a case study of South Africa', Defence and Peace Economics, vol. 25, no. 6, pp. 619-633.