The nexus between defense expenditure and economic growth: New global evidence

This paper applies a two-step Generalized Method of Moments (GMM) to re-examine the causality between defense burden (MB) and real GDP (RY) for 137 countries. The findings indicate that a short-run causality running from MB to RY is found in lower-middle- and high-income countries and that from RY to MB is found in low-income countries, while bidirectional short-run causality is found in Asia, Europe, Latin America & the Caribbean and the Middle East & North Africa. No causality is found in upper-middle-income, European & Central Asian and Sub-Saharan African countries. Thus, our results do not support that one size fits all. This paper contributes important implications to the countries for making their defense policy.