Testing the relationship between military spending and private investments: Evidence from Turkey

Abstract

This study aims to empirically test the relationship between military spending and private investments for the period 1975-2014. Throughout this aim, in order to test the stationarity of series and the co-integration relationship between them, unit root test of Carrioni-i-Silvestre et al. (2009) and co-integration test of Maki (2012) are used, respectively. Then, co-integration coefficients are estimated via Stock and Watson (1993)’s dynamic ordinary least squares (DOLS) method. Finally, causal relationships between the series are tested by Hacker and Hatemi-J (2012) bootstrap causality test. Empirical findings point out the positive relationship between military spending and private investment (crowding in effect) in long term. However, the results of the causality test indicate that there is no causality from military spending to private investments. This study is thought to make a contribution to the literature for being the first study analyzing the relationship between military spending and private investments in Turkey.

Keywords

• Military Spending
• Investments
• Carrion-i Silvestre Unit Root Test
• Maki Cointegration
• Bootstrap Granger Causality Test