Defense Spending-Economic Growth Nexus: A Case Study of Pakistan

Pakistan Economic and Social Review, December 10, 2012 | Go to article overview

Defense Spending-Economic Growth Nexus: A Case Study of Pakistan


Byline: MUHAMMAD AZFAR ANWAR, ZAIN RAFIQUE and SALMAN AZAM JOIYA

Abstract. Defense spending of Pakistan remains high in order to sustain a credible deterrence, significant geopolitical position in Afghan wars and combat terrorism. The present study analyzes the defense spending in light of perceived and real threats to Pakistan's security and its linkages with economic growth. By developing a theoretical framework to explore the different dimensions of relationship, the study empirically investigates the relationship between defense spending and economic growth. Econo- metric techniques such as Johansen Cointegration and Granger Causality tests have been applied to obtain empirical results by using a time series data from 1980 to 2010. The results indicate that there exists a long-run relationship between defense spending and economic growth whereas economic growth granger causes defense spending.

Keywords: Defense spending, Economic growth, Security of Pakistan

JEL classification: H56, H72, Q43, Q47

I. INTRODUCTION

Defense expenditure is professed as undesirable spending and burden on an economy because expenditure on defense diverts the resource allocation of that economy from development projects. Above and beyond this perception and criticism nation-states continue to add to their defense expenditures and to develop their military stockpile and take it as a primary duty of governance for many reasons. According to Stockholm International Peace Research Institute (SIPRI), world military spendings have crossed the figure of $ 1.63 trillion in 2010, which shows a 1.3 percent increase in real terms from 2008 military spending and 50 percent increase since 2001. This can be thought by considering defense expenditure as a component of government spending which is used as a fiscal policy tool to correct short-run economic fluctuations explained by Military Keynesianism. It can be characterized as state's responsibility to pursue the goals of security and prosperity.

Pakistan is a poor country with a ranking of 156th in world per capita purchasing power parity (PPP) adjusted gross national income of $ 2,600, human develop index (HDI) ranking 125th, peace ranking 145th and stands 35th in defense spending ranking. Defense expenditure of Pakistan remains high and takes a large portion of gross domestic product (GDP) 4.5% on average from 1995 to 2009 due to longstanding conflicts and arms race with India and its geopolitical position in Afghan war and internal incidents of terrorism. These high defense spendings have attracted many researchers from within (Tahir and Sajid, 1999; Khilji and Mahmood, 1997) and outside the country (Henderson, 1993; Looney, 1998a; 1998b). There are economic effects of these expenditures and enough literature is available which shows the relationship between defense spending and economic growth and indicates the direction of this relationship.

Recently there is a decline in defense spending from 6.4% in 1995 and 4.1% in 2000 to 3.1% of GDP in 2009.

The present study aims at finding out the determinants of high defense spending and to gauge the relationship between defense spending and economic growth in Pakistan. Keeping this in view, the paper has been organized on the following lines. Section II explains theoretical framework and literature review is given in section III. Section IV explores the dynamics of defense spending; section V presents methodology and data sources; section VI gives result; and section VII concludes the study. Lastly some recommendations are given in section VIII.

II. THEORETICAL FRAMEWORK

Defense economics studies the defense expenditure management during peace and war and analysis its externalities on other sectors of the economy. Generally defense expenditure is considered as public good expenditure of an economy but defense economics analyzes the integration of defense expenditure and growth of that economy through various routes (Ando, 2009). …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Defense Spending-Economic Growth Nexus: A Case Study of Pakistan
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.