A DYNAMIC PANEL DATA MODEL FOR ANALYZING THE RELATIONSHIP BETWEEN MILITARY EXPENDITURE AND GOVERNMENT DEBT IN THE EU

Abstract

This paper examines the impact of military spending on general government debt in the enlarged European Union (EU) countries. For this purpose, we use panel data analysis and provide estimates from a dynamic Generalized Method of Moments (GMM) panel model. The dynamics are found to be important and the results suggest that military expenditures do have a large positive impact on the share of general government debt in the EU.

Keywords:

• Military expenditure
• Public debt
• Dynamic panel data

JEL Codes:

• C33
• H56
• H63

ACKNOWLEDGEMENT

The author is grateful for the constructive comments and suggestions on an earlier version of the paper made by an anonymous referee of the journal that helped improve the paper as well as to the participants at the 16th International Conference on Economics and Security, in the American University in Cairo, 21–22 June 2012. The usual disclaimer applies.

Notes

¹In our sample of 25 EU member countries, only Austria, Cyprus, Finland, Ireland and Sweden are not members of the alliance.

²See European Commission (2009a, 2009b, 2009c) and Simkovic (2009) for a detailed account of the European economic crises.

³See, for example, Petterson-Lidbom (2001).

⁴The choice of the period was dictated by data availability issues.

⁵They criticized the working paper version of the published paper in 2003.