Military Spending and External Debt in Middle East and North Africa
Keywords:Military expenditure, external debt, Panel data, CIPS, Westerlund cointegration, PMG, FMOLS, DOLS, MENA
This study investigates the nexus between military expenditure and exploding external debt in 13 countries of the Middle East and North Africa (MENA) from 2000 to 2019 by employing the second generation of panel econometrics such as cross-sectional independence (CD), CIPS unit root, Pedroni cointegration, Westerlund cointegration, and panel PMG model. The sensitivity of long-run estimates is explored by using fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) regression analysis. Pedroni and Westerlund’s cointegration findings reveal that the selected variables are cointegrated in the long run. The long-run results of the PMG model revealed that current account balance, fiscal balance, and foreign exchange reserve reveal the significant negative effect of various intensities, whereas increasing military spending shows a significant positive effect of higher intensity. The short-run results of the PMG model reveal an insignificant effect of selected variables. Estimated results of FMOLS and DOLS show the robustness of established long-run relationships.
This study urges governments of selected MENA countries to address current account and fiscal imbalances along with the considerable reduction of military expenditures to free capital required for productive economic activities.
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