An econometric study of the long-run relationship between defence expenditure and economic growth: Evidence from a developing country.

Abstract

The high levels of financial allocations to Namibia’s defence budgets have been heavily criticised because such expenditures is considered as a leakage to the country’s economy. In light of this, the study assessed the impact of military spending on economic growth in Namibia by employing the two-step Engle-Granger approach in the context of a single equation setting. The macro-economic time-series data sets utilised stretches from 1990 to 2014. The study found co-integration relationships among the variables used, suggesting the existence of a long-run relationship among the variables used in the econometric model. Furthermore, the model used passed the stability test. However, the predictive power of the model was found to be very weak given the low value of the adjusted coefficient of determination. In addition, a unidirectional causality relationship running from economic growth to military expenditure was found implying that military spending does not promote or lead to economic growth. Therefore, the need for the government to control its expenditure on defence cannot be over stressed given the findings of the study. Concomitantly, further studies concerning the issue under examination should consider the use of quarterly data sets as against annual data sets.