Investigating the Relationship between Defense Expenditures and Macroeconomic Variables in Iran using a Vector Autoregressive Model (VAR)

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Article Type:
Research/Original Article (دارای رتبه معتبر)
Abstract:
Military expenditure is a key variable in various economic growth models, and its effects can vary depending on different conditions. However, there is no general consensus regarding the relationship between defense spending, economic growth, and other macroeconomic variables. Considering the significance role of defense expenditures for ensuring of a nation's security, it is essential to examine its impact on various economic sectors. This study aims to explore the relationship between defense expenditures and macroeconomic variables in Iran over the period 1980-2022, using the vector autoregression (VAR) technique and the Toda-Yamamoto causality test. The analysis examines the relationship between defense spending and several key economic variables, including economic growth, inflation, trade balance, employment, and imports. The results obtained from the causality test point towards a bi-directional causality between defense spending and economic growth, whilst, on the other hand, a uni-directional causality exists from defense spending to employment. The study did not find a causal relationship between defense expenditure and trade balance, inflation, or imports. Additionally, the reaction functions indicate that a positive shock in military spending can lead to an increase in economic growth, imports, and employment, whilst causing a decrease in inflation and trade balance in subsequent periods.
Language:
Persian
Published:
Journal of Defense Economics and Sustainable Development, Volume:9 Issue: 34, 2024
Pages:
35 to 60
https://www.magiran.com/p2828386  
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