Abstract
The objective of the study is to examine the relationship between military expenditures and unemployment rate in the panel of selected SAARC countries namely India, Nepal, Pakistan and Sri Lanka over the period ranging from 1990 to 2013. In particular, the study used multivariate framework to examine the long-run relationship between military expenditures and unemployment rate by taking into account the effect of macroeconomic variables namely energy consumption, GDP per capita, Foreign Direct Investment (FDI) net inflows and population growth rate. The empirical results show that all the variables exhibit non-stationary behavior and have long-run relationships between them. The results of panel DOLS show that military expenditures favor the employment rate in the SAARC region, as the estimated coefficient of military expenditure has a negative and more elastic relationship with the unemployment rate. Other factors i.e., energy consumption, GDP per capita and incoming FDI significantly decreases the unemployment rate in the SAARC region. However, population growth rate does not exhibit significant association with the unemployment rate during the period under the study. In a second regression apparatus, energy consumption, and GDP per capita significantly decrease the military spending, however, population growth rate significantly increases the military expenditures in the region. The results of causality indicate that there is an inverse causality between energy consumption, GDP per capita and population growth rate with the unemployment rate, while there is no significant causation between military spending and the rest of the variables in the short-run. In the long-run, there is a significant causation between the variables with the exception of population growth rate in SAARC region. These results are valuable both for policy makers and government officials to formulate their strategic polices for SAARC countries.
Similar content being viewed by others
References
Ahmad, F. (2013). The effect of oil prices on unemployment: Evidence from Pakistan. Business and Economics Research Journal, 4(1), 43–57.
Alexander, W. R. J. (2014). The Keynesian IS-MR model and military spending. Defence and Peace Economics, 26(2), 213–221.
Arouri, M. E. H., Youssef, A. B., M’Henni, H., & Rault, C. (2014). Exploring the causality links between energy and employment in African countries. IZA DP No. 8296, Bonn-Germany.
Arslan, M., & Zaman, R. (2014). Unemployment and its determinants: A study of Pakistan economy (1999–2010). Journal of Economics and Sustainable Development, 5(13), 20–24.
Aye, G. C., Balcilar, M., Dunne, J. P., Gupta, R., & Van Eyden, R. (2014). Military expenditure, economic growth and structural instability: A case study of South Africa. Defence and Peace Economics, 25(6), 619–633.
Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, 38(2), 269–287.
Brincikova, Z., & Darmo, L. (2014). The impact of FDI inflow on employment in V4 countries. European Scientific Journal, 1, 245–252.
Chester, E. (1978). Military spending and capitalist stability. Cambridge Journal of Economics, 2(3), 293–298.
Chowdhury, M. S. R., & Hossain, M. T. (2014). Determinants of unemployment in Bangladesh: A case study. Developing Country Studies, 4(3), 16–20.
Droff, J., & Paloyo, A. R. (2014). Assessing the regional economic impacts of defense activities: A survey of methods. Journal of Economic Surveys, 29(2), 375–402.
Dumas, L. J. (2014). The real effects of military spending on security. Peace Economics, Peace Science and Public Policy, 20(3), 377–393.
Dunne, P., & Smith, R. (1990). Military expenditure and unemployment in the OECD. Defence Economics, 1(1), 57–73.
Eita, J. H., & Ashipala, J. M. (2010). Determinants of unemployment in Namibia. International Journal of Business and Management, 5(10), 92–104.
El-Said, H., & Harrigan, J. (2014). Economic reform, social welfare, and instability: Jordan, Egypt, Morocco, and Tunisia, 1983–2004. The Middle East Journal, 68(1), 99–121.
Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55(2), 251–276.
Fordham, B. O., & Walker, T. C. (2005). Kantian liberalism, regime type, and military resource allocation: Do democracies spend less? International Studies Quarterly, 49(1), 141–157.
Furuoka, F., Oishi, M., & Karim, M. A. (2014). Military expenditure and economic development in China: An empirical inquiry. Defence and Peace Economics, 1–24. doi:10.1080/10242694.2014.898383.
George, E. O., & Oseni, J. E. (2012). The relationship between electricity power and unemployment rates in Nigeria. Australian Journal of Business and Management Research, 2(2), 10–19.
Hogrefe, J., & Sachs, A. (2014). Unemployment and labor reallocation in Europe. ZEW-Centre for European Economic Research Discussion Paper, (14-083).
Hooker, M., & Knetter, M. (1994). Unemployment effects of military spending: Evidence from a panel of States. Working Paper No. 4889. National Bureau of Economic Research, 1050 Massachusetts, Cambridge.
Hoover, K. D. (1995). Relative wages, rationality, and involuntary unemployment in Keynes’s labor market. History of Political Economy, 27(4), 653–685.
Hou, N., & Chen, B. (2014). Military spending and economic growth in an augmented solow model: A panel data investigation for OECD countries. Peace Economics, Peace Science and Public Policy, 20(3), 395–409.
Huang, B. N., Hwang, M. J., & Yang, C. W. (2008). Causal relationship between energy consumption and GDP growth revisited: A dynamic panel data approach. Ecological Economics, 67(1), 41–54.
ILO. (2008). Skills for improved productivity, employment growth and development. International Labour Conference, 5th report, 97th Session, 2008, Geneva.
Jorgenson, A. K., Alekseyko, A., & Giedraitis, V. (2014). Energy consumption, human well-being and economic development in central and eastern European nations: A cautionary tale of sustainability. Energy Policy, 66, 419–427.
Kannaiah, D., & Selvam, V. (2014). Impact of FDI in retailing: An empirical analysis on perception of unemployed youth on employment opportunities in India. International Journal of Economics and Finance, 6(11), 9–15.
Karfakis, C., Katrakilidis, C., & Tsanana, E. (2014). Does output predict unemployment? A look at Okun’s Law in Greece. International Labour Review, 153(3), 421–433.
Khalid, M. A., & Mustapha, A. B. (2014). Long-run relationships and causality tests between military expenditure and economic growth in India. The Economics and Finance Letters, 1(6), 49–58.
Lin, E. S., Ali, H. E., & Lu, Y. L. (2015). Does military spending crowd out social welfare expenditures? Evidence from a panel of OECD countries. Defence and Peace Economics, 26(1), 33–48.
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(Supplement 1), 631–652.
Malizard, J. (2014). Defense spending and unemployment in France. Defence and Peace Economics, 25(6), 635–642.
Maqbool, M. S., Mahmood, T., Sattar, A., & Bhalli, M. N. (2013). Determinants of unemployment: Empirical evidences from Pakistan. Pakistan Economic and Social Review, 51(2), 191–207.
Mpanju, A. K. (2012). The impact of foreign direct investment on employment creation in Tanzania. ZENITH International Journal of Business Economics & Management Research, 2(1), 126–129.
Pan, C. I., Chang, T., & Wolde-Rufael, Y. (2014). Military spending and economic growth in the Middle East countries: Bootstrap panel causality test. Defence and Peace Economics, 1–14. doi:10.1080/10242694.2014.891356.
Paul, S. (1996). Defence spending and unemployment rates. Journal of Economic Studies, 23(2), 44–54.
Pereira, A., & Andraz, J. (2014). On the long-term macroeconomic effects of social security spending: Evidence for 12 EU countries (No. 150). College of William and Mary, Department of Economics, Working Paper Number 150. Accessed on 18 November, 2014 from http://economics.wm.edu/wp/cwm_wp150.pdf
Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics Working Paper 0435. http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0435.pdf
Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross section dependence. Journal of Applied Econometrics, 22, 265–312.
Pesaran, M. H., Shin, Y., & Smith, R. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of American Statistical Association, 94, 621–634.
Salman, A. K., & Shukur, G. (2014). Investigating causal relations between the GDP cycle and unemployment: Data from Finland. International Journal of Economics and Finance, 6(4), p118.
Solarin, S. A., & Sahu, P. K. (2014). The effect of military expenditure on stock market development: Panel evidence from system GMM estimates. Defence and Peace Economics, 26(3), 271–287.
Tang, J.-H., Lai, C.-C., & Lin, E. S. (2009). Military expenditure and unemployment rates: Granger causality tests using global panel data. Defence and Peace Economics, 20(4), 253–267.
Teng, Y., & Wei, Y. (2014). Empirical research of mutual relation between China’s defense expenditure and public expenditure based on crowding-out effect algorithm⋆. Journal of Computational Information Systems, 10(13), 5523–5532.
Tharion, W. J., Lieberman, H. R., Montain, S. J., Young, A. J., Baker-Fulco, C. J., DeLany, J. P., & Hoyt, R. W. (2005). Energy requirements of military personnel. Appetite, 44(1), 47–65.
Thirunavukkarasu, V., Achchuthan, S., & Rajendran, K. (2014). Foreign direct investment, economic growth and unemployment: Evidence from Sri Lanka. Anamali Business Review, 4(1), 74–78.
Thorpe, R. U. (2014). The American warfare state: The domestic politics of military spending. Chicago: University of Chicago Press.
Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69(6), 709–748.
World Bank. (2014). World Development Indicators, World Bank, Washington, DC.
Yildirim, J., & Sezgin, S. (2003). Military expenditure and employment in Turkey. Defence and Peace Economics, 14, 129–139.
Zeb, N., Qiang, F., & Sharif, M. S. (2014). Foreign direct investment and unemployment reduction in Pakistan. International Journal of Economics and Research, 5(02), 10–17.
Author information
Authors and Affiliations
Corresponding authors
Rights and permissions
About this article
Cite this article
Azam, M., Khan, F., Zaman, K. et al. Military Expenditures and Unemployment Nexus for Selected South Asian Countries. Soc Indic Res 127, 1103–1117 (2016). https://doi.org/10.1007/s11205-015-0993-7
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11205-015-0993-7