Military Expenditure, Economic Growth and Development in Transition Economies: A Panel VAR GMM Approach

Abstract The paper examines the relation between military expenditure and three growth and development related variables (GDP growth, GDP per capita growth and Industry Value Added growth) in 31 transition economies during the 1985–2018 period and in a series of different samples by applying the Panel VAR GMM methodology. The empirical results reveal different patterns of the significant association between military expenditure and the examined growth and development variables, which is positive for certain samples and negative for others. The causality analysis shows that in the vast majority of the cases, the causality direction runs from military expenditure towards the examined growth and development related variables. In addition, the analysis provides uniform evidence on certain positive impacts of defense expenditure on population growth and schooling and negative impacts on savings. The results from the Ex-Soviet Economies are of particular interest as the association between military expenditure and the examined growth-related variables, becomes positive. We interpret the results in the context of the wider characteristics of the particular geographical area. JEL Classifications: H50, H56 Transition Economies, Transition, Military Expenditure, Economic growth, GDP per capita, Industry Value Added