An analysis of defence spending in Spain: A long‐run approach*

The authors would like to express their thanks to Dr. Alain Cuenca and Dr. Marcela Sabaté for their encouragement and helpful observations on an earlier version of this paper.

This paper analyses the behaviour of Spanish public spending on defence for the period 1850–1995. Through the use of recent cointegration and unit root techniques, we demonstrate the existence of an equilibrium relationship between this variable and Spanish GDP during the years in question. Furthermore, the income elasticity of this relationship is shown to be equal to one. Finally, the detection and removal of a number of additive outliers, all of them related to different periods of military conflict, appears to be vital in obtaining these results.

Key Words:

• Defence spending
• Unit roots
• Cointegration
• Additive outliers

JEL classification:

• H56
• C22

Notes

Department of Applied Economics. e‐mail: [email protected]

Department of Economic Analysis, e‐mail: [email protected]

The authors would like to express their thanks to Dr. Alain Cuenca and Dr. Marcela Sabaté for their encouragement and helpful observations on an earlier version of this paper.