Empirical Analysis of Military Expenditure and Industrialisation Nexus: A Regional Approach for Africa

Abstract

This study investigates the impact of military expenditure on industrialisation at regional economic communities of African countries for a balanced panel of 35 African countries between 1990 and 2015. We applied a more recently developed panel causality and Generalised Method of Moments (GMM) estimation techniques. The findings suggest a feedback causality between military expenditure and industrialisation, but with significant differences between military expenditure and other determining variables of industrialisation. The causality results justified the use of System-GMM. The System-GMM results show that military expenditure has: (1) significant positive impact on industrialisation in AMU, CEN-SAD, IGAD, and SADC; (2) insignificant impact in COMESA, ECCAS and ECOWAS regions. The positive impact of military expenditure on industrialisation in the four regions suggests that the military expenditure needed to create a conducive environment for industrialisation process has been relatively effective. While in regions where the impact is insignificant suggests the need for a greater coordinated military spending needed to promote industrialisation process.

KEYWORDS:

• Military expenditure
• industrialisation
• panel causality
• dynamic panel model
• African regional economic communities

JEL CLASSIFICATIONS:

• C2
• H56
• O4

Acknowledgements

We thank the editor of International Economic Journal and the two anonymous referees for their insightful and helpful comments that helped improve the quality of this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Charles Shaaba Saba http://orcid.org/0000-0001-6230-7292

Nicholas Ngepah http://orcid.org/0000-0002-1947-0008

Notes

1 Please note that the keywords for military expenditure include defence expenditure, defence spending, military spending, military expenditure, and defence burden.

2 These initiatives and strategies include: New Partnership for Africa’s Development (NEPAD), of 2001; the African Productive Capacity Initiative (APCI), of 2004; the Plan of Action for the Accelerated Industrial Development for Africa (AIDA), of 2008; Import Substitution Industrialisation (ISI).

3 Arab Maghreb Union (AMU); Community of Sahel-Saharan States (CEN-SAD); Common Market for Eastern and Southern Africa (COMESA); East African Community (EAC); The Economic Community of Central African States (ECCAS); Economic Community of West African States (ECOWAS); Intergovernmental Authority on Development (IGAD); Southern African Development Community (SADC).

4 Interested readers are referred to Dumitrescu and Hurlin (2012) methodological framework for more details.

5 Interested readers are referred to Arellano and Bond (1991), Arellano and Bover (1995), and Blundell and Bond’s (1998) for more details.

Additional information

Notes on contributors

Charles Shaaba Saba

Charles Shaaba Saba, b. 1986, Masters in Economics (Obafemi Awolowo University Ile-Ife, Osun State, Nigeria, 2015); Currently a PhD student at School of Economics University of Johannesburg. Current research interest: Defense and Peace Economics; Public Finance; Development Economics and Transport Economics.

Nicholas Ngepah

Nicholas Ngepah, b. 1975, PhD in Economics (University of Cape Town, South Africa); Currently a lecturer and Associate Professor of Economics at School of Economics University of Johannesburg. Current research interest: Development Economics; Energy Economics; Health Economics; Poverty, Inequality and Growth.