IDEAS home Printed from https://ideas.repec.org/a/taf/reroxx/v35y2022i1p692-708.html
   My bibliography  Save this article

Military industry bubbles: are they crowding out utility investments?

Author

Listed:
  • Yingying Xu
  • Zhixin Liu
  • Chiwei Su
  • Stefea Petru

Abstract

The rapid growth in defence expenditure in China raises the concern that investments in the defence sector crowd out investments in social sectors, i.e., the ‘guns for butter’ argument. This article resorts to the bubble testing method to study the trade-off between defence and utilities sectors in the Chinese capital market. Based upon the generalized sup Augmented Dickey-Fuller (GSADF) test, this paper captures and date stampings explosive behaviors in defence and utilities industries using stock indexes. Empirical results reveal bubbles for defence and utilities sectors in similar time periods, thus indicating that the factors driving explosive movements are alike for both sectors. However, bubbles in a certain sector do not necessarily crowd out investments in the other sector. Through testing bubbles in the ratio of stock indexes of two sectors, we find that the explosive episodes vanish. The results indicate that the crowding-out effect between defence and utilities sectors does not exist in the Chinese capital market. Increases in the military expenditure in China are necessary to safeguard the national security because of frequent geopolitical conflicts and terrorism. However, the defence to utilities ratio is increasing rapidly, implying the possibility that excessive growth in military expenditure may generate the ‘guns for butter’ problem, which can be detrimental to economic growth.

Suggested Citation

  • Yingying Xu & Zhixin Liu & Chiwei Su & Stefea Petru, 2022. "Military industry bubbles: are they crowding out utility investments?," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 692-708, December.
  • Handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:692-708
    DOI: 10.1080/1331677X.2021.1931913
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1331677X.2021.1931913
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/1331677X.2021.1931913?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:692-708. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rero .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.