Impact of Defense Spending on Economic Growth: Evidence from Developing Nations of Asia

Abstract: The purpose of this paper is to explore the relationship between economic growth, defense expenditure and other regionally essential variables of 12 emerging countries of South East Asia for the year 1990 to 2015. Random and Fixed effect models along with the unit root tests are used to analyze if the data is stationary or not. Variance decomposition and impulse response coefficient are estimated after the implication of the cointegration analysis. According to the result, defense expenditure has a positive and significant impact on the growth of the emerging economies. The defense spendings affect the infrastructure of the particular country that results in more efficiency in the labor market hence stimulating economic growth (Looney Fredrickson 1992). Also, the economic growth of the country is triggered by more and more external debt and total investment. Therefore, we have a positive and significant relationship.