Defence Expenditure and Economic Growth in South Asian Countries: An Econometric Analysis

Abstract

This research study gives a comprehensive and objective discussion vis-a-vis critical analyses pertaining to the cointegration and causal relationship between defence expenditure and economic growth of selected South Asian countries namely Bangladesh, India, Pakistan, Sri Lanka and Nepal. Further this work examines the factors which determine the budgetary allocation of deference expenditure in south Asian countries in a panel framework, given their socioeconomic, political and strategic circumstances. The time series data on GDP, defence expenditure, inflation rate, size of the army, consumption expenditure, population size and inflation rate from 1973 to 2018 have been used and econometric techniques like Johansen Cointegration Test, Vector Autoregression (VAR), Granger Causality approach, Random Effects model (REM), Fixed Effects Model (FEM), Generalized Method of Moments (GMM) and pooled regression have been applied. While time series approaches, Johansen Cointegration Test, Vector Autoregression (VAR) and Granger Causality approach are employed to assess the cointegration relationship and pairwise causality among the variables; the panel approaches, REM, FEM and GMM are applied to evaluate the factors which determines the volume of the defence expenditure controlling the possible bias in panel data in term of endogeneity and heterogeneity. ----