THE RELATIONSHIP BETWEEN DEFENSE EXPENDITURE AND ECONOMIC GROWTH: A PANEL DATA ANALYSIS FOR TURKEY AND SELECTED COUNTRIES

Abstract

In this study, the relationships between defense expenditure and economic growth are analyzed by panel data analysis methods by using the data of 1992-2017 periods for 15 countries with the highest defense spending in 2017. The stationarity of the series is examined by LLC and IPS panel unit root tests and the series are determined to be I(1). Cointegration relationships between series is examined by Pedroni panel cointegration test and it is determined that the series are cointegrated. Long and short-term analyzes are performed by PDOLS method, and 1% increase in defense expenditures is estimated to incline the national income by 1.05% in average, and this effect is slightly lower in the short term. Similarly; 1% increase in national income is found to ascend defense expenditure by 0.89% and this effect is also lower in the short term. Error correction mechanism of the models operates. Causality relationships between series is examined by VECM method and it is determined that a causality exists from national income to defense expenditures only in the long term while it exists both in the short term and in the long term from defense expenditure to national income.