Military expenditure and income distribution in South Korea

Abstract

This paper attempts to investigate the long-run and the causal relationship between military expenditure and income distribution in South Korea for the period 1965–2011. Applying the bounds test approach to cointegration, we found a long-run relationship between military expenditure and the Gini coefficient with military expenditure having a positive and a statistically significant impact on income inequality. A 1% rise in military expenditure increased the Gini coefficient by 0.38%. Application of the lag-augmented causality test also reveals a unidirectional causality running from military expenditure to income inequality. The evidence seems to suggest that devoting more resources to the military sector may further worsen income inequality in South Korea.

Keywords:

• Military spending
• Income inequality
• South Korea
• Bounds test
• Granger causality
• Variance decomposition

• JEL Codes:
• C22
• H56

Acknowledgements

I am grateful to the anonymous Referee for her/his useful comments and suggestions and also to Professor Christos Kollias for his encouragement. Any remaining errors and ambiguities are my own responsibility.

Notes

¹ We are aware that exclusion of a relevant variable(s) makes the estimates not only biased as well as inconsistent, but also, no-causality in a bivariate system can result from neglected variables (Lȕtkepohl 1982).