New evidence from an alternative methodological approach to the defence spending‐economic growth causality issue in the case of mainland China

New evidence from an alternative methodological approach to the defence spending‐economic... Proposes to re‐examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike’s FPE statistics and a likelihood ratio test for over‐ and under‐fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error‐correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger‐causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long‐run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed‐door economy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

New evidence from an alternative methodological approach to the defence spending‐economic growth causality issue in the case of mainland China

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Publisher
Emerald Publishing
Copyright
Copyright © 1997 MCB UP Ltd. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443589710167347
Publisher site
See Article on Publisher Site

Abstract

Proposes to re‐examine empirically the causal relationship between defence spending and economic growth in mainland China. First, using a VAR modelling technique with suitable diagnostics, e.g. Akaike’s FPE statistics and a likelihood ratio test for over‐ and under‐fitting the causal model, the results indicate a positive unidirectional causality flowing from defence spending to economic growth. Second, by evaluating a dynamic vector error‐correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger‐causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth, giving rise to implications that although expenditure on defence may have been politically motivated, over the long‐run this spending did play a significant indirect role in enhancing the growth potential of this, for many years, closed‐door economy.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Jun 1, 1997

Keywords: Cointegration; Defence; Growth; Models

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