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Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity

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  • Tsangyao Chang
  • Chien-Chiang Lee
  • Ken Hung
  • Kuo-Hao Lee

Abstract

This study revisits the causal linkages between military spending and economic growth in China and G7 countries (i.e. Canada, France, Germany, Italy, Japan, the UK, and the USA) by focusing country-specific analysis for the period 1988-2010. The panel causality analysis, which accounts for both cross-country dependency and heterogeneity across countries, is employed in this study. Our results find evidence of the neutrality hypothesis for Italy, France, and Germany, the military spending-growth detriment hypothesis for both Canada and the UK, and one-way Granger causality running from economic growth to military spending for China. Furthermore, we find a feedback between military spending and economic growth in both Japan and the USA. Thus, our results do not support that one size fits all.

Suggested Citation

  • Tsangyao Chang & Chien-Chiang Lee & Ken Hung & Kuo-Hao Lee, 2014. "Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(2), pages 177-191, April.
    • Handle: RePEc:taf:defpea:v:25:y:2014:i:2:p:177-191
    DOI: 10.1080/10242694.2013.763460
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    Cited by:

    1. Muhammad Shahbaz & Syed Jawad Hussain Shahzad & Mantu Kumar Mahalik & Perry Sadorsky, 2018. "How strong is the causal relationship between globalization and energy consumption in developed economies? A country-specific time-series and panel analysis," Applied Economics, Taylor & Francis Journals, vol. 50(13), pages 1479-1494, March.
    2. Ullah, Assad & Zhao, Xinshun & Kamal, Muhammad Abdul & Zheng, JiaJia, 2020. "Modeling the relationship between military spending and stock market development (a) symmetrically in China: An empirical analysis via the NARDL approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    3. Cosimo Magazzino & Lorenzo Giolli & Marco Mele, 2015. "Wagner's Law and Peacock and Wiseman's Displacement Effect in European Union Countries: A Panel Data Study," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 812-819.
    4. Mehmet Akif Destek & Ilyas Okumus, 2016. "Military Expenditure and Economic Growth in Brics and Mist Countries: Evidence from Bootstrap Panel Granger Causality Analysis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 14(2), pages 175-186.
    5. Rafał Woźniak & Jacek Lewkowicz, 2023. "Can We Have More Butter and Guns Simultaneously? An Endogeneity Perspective," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 28-46.
    6. Alessandra Cepparulo & Paolo Pasimeni, 2024. "Defence Spending in the European Union," European Economy - Discussion Papers 199, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Abdulnasser Hatemi-J & Tsangyao Chang & Wen-Yi Chen & Feng-Li Lin & Rangan Gupta, 2015. "Asymmetric Granger Causality between Military Expenditures and Economic Growth in Top Six Defense Suppliers," Working Papers 201565, University of Pretoria, Department of Economics.
    8. Oana Ramona GLONT, 2018. "The Effect Of Defence Spending On Economic Development In Central Europe," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 16, pages 97-106, May.
    9. King, Cheng & Du, Jane, 2018. "China’s first priority in post-war state building: A wealthy state, or a strong army?," Journal of Policy Modeling, Elsevier, vol. 40(5), pages 851-872.
    10. Dimitrios Karamanis, 2022. "Defence partnerships, military expenditure, investment, and economic growth: an analysis in PESCO countries," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 173, Hellenic Observatory, LSE.
    11. Saba Charles Shaaba, 2022. "Defence Spending and Economic Growth in South Africa: Evidence from Cointegration and Co-Feature Analysis," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 28(1), pages 51-100, February.
    12. Feng-Li Lin & Mei-Chih Wang, 2019. "Does economic growth cause military expenditure to go up? Using MF-VAR model," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 3097-3117, November.
    13. çenberci, engin, 2020. "The Nexus Between Defense Spending and Growth: Empirical Analysis of First Euro Users," MPRA Paper 111273, University Library of Munich, Germany.
    14. Ming Zhong & Tsangyao Chang & Samrat Goswami & Rangan Gupta, 2014. "The Nexus between Military Expenditures and Economic Growth in the BRICS and the US: A Bootstrap Panel Causality Test," Working Papers 201449, University of Pretoria, Department of Economics.
    15. Khalid Zaman, 2019. "Does higher military spending affect business regulatory and growth specific measures? Evidence from the group of seven (G-7) countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(1), pages 323-348, April.
    16. Oana Ramona Lobont & Oana Ramona Glont & Leonardo Badea & Sorana Vatavu, 2019. "Correlation of military expenditures and economic growth: lessons for Romania," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2957-2968, November.
    17. Saba Ismail, 2017. "Military Expenditure and Economic Growth in South Asian Countries: Empirical Evidences," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 318-325.
    18. Abdulnasser Hatemi-J & Tsangyao Chang & Wen-Yi Chen & Feng-Li Lin & Rangan Gupta, 2018. "Asymmetric causality between military expenditures and economic growth in top six defense spenders," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(3), pages 1193-1207, May.
    19. Abdul Rehman & Hengyun Ma & Rafael Alvarado & Fayyaz Ahmad, 2023. "The nexus of military, final consumption expenditures, total reserves, and economic development of Pakistan," Economic Change and Restructuring, Springer, vol. 56(3), pages 1753-1776, June.
    20. Suna Korkmaz, 2015. "The Effect of Military Spending on Economic Growth and Unemployment in Mediterranean Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 273-280.

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