A Literature Survey on Defense Expenditures – External Debt Nexus

Abstract The aim of this study is to survey the literature dealing with the relationship between defense expenditures and external debt. Especially, nowadays, amid the international financial crisis and the global security challenges, understanding the relationship between external debt and defense spending is prominent in designing the debt management policy in conjunction with defense policy. The empirical investigation has produced mixed results, which can be attributed to differences in data sets or time periods, variable selection, econometric methodologies used etc. However, most of the studies confirm the presence of a long-run relationship among military spending and external debt and consider military spending as a significant contributing factor to the stock of external debt.