Paradox of Security, Defense Expenditures and Economic Growth with Considering Foreign Debt in MENA Countries: Simultaneous Panel Data Approach

The formation of an arms race among countries may lead to a security paradox and ultimately a decline in economic growth. On this basis, although the government in each country is required to provide a level of security to its citizens, defense spending in each country is also important for other countries in the region. Therefore, this study in the form of augmented growth Solow model, analysis the paradox of security, defense expenditure and economic growth with the consideration of foreign debt in MENA countries during the period (1995-2014). In this regard, the results are estimated using simultaneous equations system and the two-stage least squares method (2SLS), with using the Stata econometric software. The empirical results show that a one percent increase in the ratio of defense expenditures to GDP has caused a decrease of 0.1% in economic growth. The results also indicate that a one percent increase in the ratio of foreign debt to GDP has decreased 0.05% economic growth. In addition, a one percent increase in economic growth has increased 0.95 percent in the ratio of defense expenditures to GDP. Also, one percent increase in the ratio of foreign debt to GDP has increased 13% in the ratio of defense spending to GDP. Also, the border with the countries involved in the internal wars has increased the defense expenditures in the neighboring country.