DOES DEFENCE SPENDING IMPEDE ECONOMIC GROWTH? COINTEGRATION AND CAUSALITY ANALYSIS FOR PAKISTAN

Figures & data

Table I Unit Root Estimation

Variables	MZa	MZ t	MSB	MPT
Ng and Perron at level with intercept and trend
ln GDP t	−4.20307	−1.3811	0.3285	20.9802
ln ME t	−3.2154	−1.2052	0.3748	26.9661
ln GE t	−5.8527	−1.7090	0.2920	15.5669
ln IR t	−8.7644	−2.0398	0.2327	10.5843
Ng and Perron at first difference with intercept and trend
Δln GDP t	−24.1666^∗	−3.4679	0.1435	3.8189
Δln ME t	−30.8187 ^∗	−3.8964	0.1264	3.1208
Δln GE t	−17.1881^∗∗∗	−2.9202	0.1699	5.3696
ln IR t	−27.9289^∗	−3.7181	0.1331	3.3713
Note: ^∗, ^∗∗ and ^∗∗∗ denote significance at the 1, 5 and 10% levels, respectively.

Table II Cointegration Test: ARDL Bounds Test

Estimated model	F-statistics			Lag
F GDP t (GDP t /ME t , GE t , IR t )	3.165			2
F ME t (ME t /GDP t , GE t , IR t )	5.278^∗∗∗			2
F GE t (GE t /GDP t , ME t , IR t )	5.191^∗∗∗			2
F IR t (IR t /GDP t , ME t , GE t )	2.113			2
Estimated model	R ^2	Adjusted-R ^2	F-statistics	Durban–Watson
F GDP t (GDP t /ME t , GE t , IR t )	0.79820	0.55317	3.257^∗∗	2.283
F ME t (ME t /GDP t , GE t , IR t )	0.71432	0.36742	2.059^∗∗∗	2.376
F GE t (GE t /GDP t , ME t , IR t )	0.80145	0.56035	3.324^∗∗	1.915
F IR t (IR t /GDP t , ME t , GE t )	0.65814	0.27070	1.698	2.149
Note: ^∗∗∗denotes significance at the 10% level comparing with critical bounds generated by Turner (2006). b and c also indicate significant at 5% and 10% level of significance.

Table III Long-Run Elasticities

Dependent variable = ln GDP t
Variable	Coefficient	SE	T-statistic
Constant	0.7188	0.4765	1.5084
ln GDP t	0.8895	0.0270	32.9158^∗
ln ME t	−0.4515	0.1912	−2.3607^∗∗
ln GE t	0.1298	0.0220	5.8988^∗
ln IR t	−0.0418	0.0114	−3.3677^∗
R ^2= 0.9888
Adjusted R ^2= 0.9873
SE of regression = 0.0311
Akaike info criterion = −3.9688
Schwarz criterion = −3.7466
Log likelihood = 74.4542
F-statistic = 662.8248
Prob(F-statistic) = 0.0000
Durbin–Watson = 1.4876
Diagnostic tests		Statistics
J–B normality test		2.0692
Breusch–Godfrey LM test		[1] 1.8188, [2] 2.0671
ARCH LM test		[1] 0.1932, [2] 0.3322
White heteroscedasticity		0.9561
Ramsey RESET		2.9494^∗∗∗
CUSUM		Stable^∗∗
CUSUMsq		Stable^∗∗
Note: ^∗ and ^∗∗ denote significance at the 1 and 5% levels, respectively.

Table IV Short-Run Elasticities

Dependent variable = Δln GDP t )
Variable	Coefficient	SE	T-statistic
Constant	−0.0010	0.0058	−0.1815
Δln GDP t −1	0.7954	0.1454	5.4671^∗
Δln ME t	−0.2147	0.7151	−0.3002
Δln GE t	0.0550	0.0256	2.1512^∗∗
Δln IR t	−0.0406	0.0146	−2.7739^∗
ECM t −1	−0.6057	0.2333	−2.5959^∗∗
R ^2 = 0.5358
Adjusted R ^2 = 0.4529
SE of regression = 0.0275
Akaike info criterion = −4.1840
Schwarz criterion = −3.9146
Log likelihood = 77.1285
F-statistic = 6.4639
Prob(F-statistic) = 0.0004
Durbin–Watson = 2.1083
Diagnostic tests		Statistics
J–B normality test		0.9678
Breusch–Godfrey LM test		[1] 0.8106, [2] 1.7890
ARCH LM test		[1] 0.9308, [2] 0.4728
White heteroscedasticity		1.1003
Ramsey RESET		1.6688
CUSUM		Stable^∗∗
CUSUMsq		Stable^∗∗
Note: ^∗ and ^∗∗ show significant at 1% and 5% levels respectively.

FIGURE 1 Plot of cumulative sum of recursive residuals (Long run model) Note: The straight lines represent critical bounds at 5% significance level

FIGURE 2 Plot of cumulative sum of squares of recursive residuals (Long run model) Note: The straight lines represent critical bounds at 5% significance level

FIGURE 3 Plot of cumulative sum of recursive residuals (Short run model) Note: The straight lines represent critical bounds at 5% significance level

FIGURE 4 Plot of cumulative sum of squares of recursive residuals (Short run model) Note: The straight lines represent critical bounds at 5% significance level

Table V The Results of Granger Causality

Dependent variable	Type of Granger causality
	Short run				Long-run	Joint (short- and long-runs)
	Δln GDP t	Δln ME t	Δln GE t	Δln IR t	ECT t −1	Δln GDP t , ECT t −1	Δln ME t , ECT t −1	Δln GE t , ECT t −1	Δln IR t , ECT t −1
	F-statistics [p-values]				[t-statistics]	F-statistics [p-values]
Δln GDP t	–	2.7751^∗∗∗ [0.0816]	0.5497 [0.5839]	3.5256^∗∗ [0.0448]	–0.04757^∗∗ [−2.0951]	–	5.0604^∗∗∗ [0.0071]	2.2172 [0.1110]	3.2058^∗∗∗ [0.0403]
Δln GDP t	1.7899 [0.1877]	–	0.8173 0.4530]	0.5634 [0.5763]	−0.0543 [−1.0155]	2.1834 [0.1151]	–	1.1099 [0.3637]	0.8882 [0.4607]
Δln GE t	0.0767 [0.9263]	3.0751^∗∗∗ [0.640]	–	5.3668^∗∗ [0.0115]	−0.3752^∗ [−2.7935]	2.7262^∗∗∗ [0.0654]	7.6500^∗ [0.0000]	–	6.2417^∗ [0.0026]
Δln IR t	3.2052^∗∗ [0.0577]	0.7267 [0.4934]	0.0540 [0.9447]	–	−0.4838^∗∗∗ [−1.8536]	4.6518^∗∗ [0.0102]	3.3255^∗∗ [0.0358]	4.5179^∗∗ [0.0107]	–
Note: The asterisks ^∗∗∗, ^∗∗ and ^∗ denote the significant at the 1, 5 and 10% levels, respectively.