Oil, development, and military expenditure: A panel data evidence from the Middle East

Abstract

In the Middle East, vast oil reserves led to economic modernization and prosperity in the region. However, it is one of the most conflict-prone regions. This paper studies the relationship between military spending, oil and development in Middle Eastern countries using a panel data fixed effect for country-level observations over the period 1986-2016. The relationship between development and conflict will not be uniform throughout the region. Therefore, to test this hypothesis, the study categorized oil exporting countries into three parts that are countries with above average oil export, below average oil export and no oil export. The estimates show a significant reduction in military spending over time and the most declines were observed in the countries where oil export is above average than the Middle East. The results indicate a significant inverse relationship between the military spending with exports and oil rents in overall Middle East analysis and for countries whose average oil export is greater than the Middle East. It is also found that the military burden adversely affects economic growth across all the model specification. However, military spending is declining over time which indicates that there is a reverse causality between development and conflict. It is crucial finding in the context of peace and development literature.