Democracy, military expenditure and economic growth: A heterogeneous perspective

Abstract

ABSTRACT Countries with different democratic levels tend to show various degrees of emphasis on military expenditure and a consensus can hardly be reached on the economic effect of democracy and military expenditure. By applying a panel vector autoregressive (PVAR) approach, this article examines the potential dynamic and endogenous relationships among democracy, military expenditure and economic growth of 126 countries from 1990 to 2020. Furthermore, the k-means clustering algorithm is employed to account for the heterogeneous interaction between democracy and military expenditure in different countries. The empirical results reveal that the strong positive impact of democracy and the negative effect of military spending on economic growth exists in the full sample and the cluster of countries with low democratic levels and a high military burden. For democratic countries with low military expenditure, there is a more significant and negative impact both of military expenditure on democracy and vice versa.