A Nonlinear Model of Military Expenditure Convergence: Evidence from Estar Nonlinear Unit Root Test

Chi Keung Marco Lau, Ender Demir, Mehmet Huseyin Bilgin

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

The paper builds a model to empirically test military expenditure convergence in a nonlinear set up. We assert that country A chooses a military strategy of catching up with the military expenditure of its rivals, subject to public spending constraints on public investments, including health and education, leading to decrease in long-term economic welfare. This implies nonlinear convergence path: only when the military expenditure gap between countries reaches the threshold level, will it provide incentives to catch up with rival’s military expenditures. We test this nonlinear catching up hypothesis for 37 countries spanning from 1988 to 2012. Results from individual nonlinear cross-sectionally augmented Dickey–Fuller (NCADF) regression indicate that 53% of countries converge to world’s average military expenditure: where 39% of countries converge to Germany; 33% of countries converge to China; 22% of countries converge to the USA, and 11% of countries converge to Russia. Interestingly, USA does not exhibit nonlinear military expenditure convergence toward world’s average level. For panel NCADF regression, the result suggests that on average, there is evidence for countries converging to USA’s military expenditure at 10% significance level. For the convergence to the world’s average, the statistical significance is at the 1% significance level.
LanguageEnglish
Pages392-403
Number of pages12
JournalDefence and Peace Economics
Volume27
Issue number3
Early online date26 Feb 2015
DOIs
Publication statusPublished - 2016
Externally publishedYes

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non-linear model
expenditures
Military
evidence
regression
welfare economics
public spending
public investment
Unit root tests
Military expenditure
statistical significance
Russia
incentive
China
health

Cite this

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abstract = "The paper builds a model to empirically test military expenditure convergence in a nonlinear set up. We assert that country A chooses a military strategy of catching up with the military expenditure of its rivals, subject to public spending constraints on public investments, including health and education, leading to decrease in long-term economic welfare. This implies nonlinear convergence path: only when the military expenditure gap between countries reaches the threshold level, will it provide incentives to catch up with rival’s military expenditures. We test this nonlinear catching up hypothesis for 37 countries spanning from 1988 to 2012. Results from individual nonlinear cross-sectionally augmented Dickey–Fuller (NCADF) regression indicate that 53{\%} of countries converge to world’s average military expenditure: where 39{\%} of countries converge to Germany; 33{\%} of countries converge to China; 22{\%} of countries converge to the USA, and 11{\%} of countries converge to Russia. Interestingly, USA does not exhibit nonlinear military expenditure convergence toward world’s average level. For panel NCADF regression, the result suggests that on average, there is evidence for countries converging to USA’s military expenditure at 10{\%} significance level. For the convergence to the world’s average, the statistical significance is at the 1{\%} significance level.",
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A Nonlinear Model of Military Expenditure Convergence : Evidence from Estar Nonlinear Unit Root Test. / Lau, Chi Keung Marco; Demir, Ender; Bilgin, Mehmet Huseyin.

In: Defence and Peace Economics, Vol. 27, No. 3, 2016, p. 392-403.

Research output: Contribution to journalArticle

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