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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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.
Cointegration , Defence , Growth , Models
Mohammed Masih, Abul Mansur and Masih, Rumi and Hasan, Mohammad S. (1997). New evidence from an alternative methodological approach to the defence spending-economic growth causality issue in the case of mainland China. Journal of Economic Studies, 24 (3), pp.123-140.
MCB UP Ltd