Defense Spending and Economic Growth in China, India, Nepal and Pakistan: Evidence from Cointegrated Panel Analysis

Abstract

The study investigates the nexus between defense spending and economic growth in China, India, Nepal and Pakistan. The empirical analysis is based on integration and cointegration properties of data over the period 1988-2007. The long run relationship between defense spending, economic growth and public debt are identified in a cointegration framework. The paper finds bidirectional causality between economic growth and public debt in China and India; unidirectional causality from defense spending to economic growth in China and Nepal, unidirectional causality from public debt to defense spending in India, and unidirectional causality from economic growth to public debt in Pakistan. The panel Granger causality test, however, confirms the presence of bidirectional causality between public debt and economic growth. The cointegration test at the end suggests that defense spending of a particular country can affect the defense spending of other country. [PUBLICATION ABSTRACT]