International Science Index


10003965

Usage of Military Spending, Debt Servicing and Growth for Dealing with Emergency Plan of Indian External Debt

Abstract:

This study investigates the relationship between external debt and military spending in case of India over the period of 1970–2012. In doing so, we have applied the structural break unit root tests to examine stationarity properties of the variables. The Auto-Regressive Distributed Lag (ARDL) bounds testing approach is used to test whether cointegration exists in presence of structural breaks stemming in the series. Our results indicate the cointegration among external debt, military spending, debt servicing, and economic growth. Moreover, military spending and debt servicing add in external debt. Economic growth helps in lowering external debt. The Vector Error Correction Model (VECM) analysis and Granger causality test reveal that military spending and economic growth cause external debt. The feedback effect also exists between external debt and debt servicing in case of India.

References:
[1] A. K. Tiwari, “Debt sustainability in India: Empirical evidence estimating time-varying Parameters,” Economics Bulletin 2012, 32, pp. 1133–1141.
[2] A. K. Tiwari, M. Shahbaz, “Does defence spending stimulate economic growth in India?,” Defence and Peace Economics 2013, 24, pp. 371–395.
[3] L. K. Behera, “India’s affordable defence spending,” Journal of Defence Studies 2008, 2, pp. 136–148.
[4] J. P. Dunne, S. Perlo-Freeman, and A. Soydan, “Military expenditure and debt in South America,” Defence and Peace Economics 2004, 15, pp. 173–187.
[5] E. T. Karagol and S. Sezgin, “Do defence expenditures increase debt rescheduling in Turkey? Probit model approach,” Defence and Peace Economics 2004, 15, pp. 471–480.
[6] C. Kollias, G. Manolas, and S. M. Paleologou, “Military expenditure and government debt in Greece: some preliminary empirical findings,” Defence and Peace Economics 2004, 15, pp. 189–197.
[7] E. T. Karagol, “Defence expenditures and external debt in Turkey,” Defence and Peace Economics 2005, 16, pp. 117–125.
[8] E. T. Karagol, “The relationship between external debt, defence expenditures and GNP revisited: The case of Turkey,” Defence and Peace Economics 2006, 17, pp. 47–57.
[9] E. T. Karagol and A. Turhan, “External debt, defence expenditures and political business cycles in Turkey,” Defence and Peace Economics 2008, 19, pp. 217–224.
[10] P. K. Narayan and S. Narayan, “Does military expenditure determine Fiji's exploding debt levels?,” Defence and Peace Economics 2008, 19, pp. 77–87.
[11] Y. Wolde-Rufael, “The defence spending-external debt nexus in Ethiopia,” Defence and Peace Economics 2009, 20, pp. 423–436.
[12] K. Zaman, I. A. Shah, M. M. Khan, and M. Ahmad, “Cointegration analysis of the economic growth, military expenditure, and external debt: Evidence from Pakistan,” Journal of Economics and Business Research 2012, 18, pp. 91–117.
[13] M. Shahbaz, T. Afza, and S. M. Shabbir, “Does defence spending impede economic growth? Cointegration and causality analysis for Pakistan,” Defence and Peace Economics 2013, 24, pp. 105–120.
[14] A. A. Anfofum, H. A. Andow, and A. N. Mohammed, “Military spending and external debt burden in Nigeria,” International Journal of Education and Research 2014, 2, pp. 611–626.
[15] M. Brzoska, “The military related external debt of third world countries,” Journal of Peace Research 1983, 20, pp. 271–277.
[16] R. E. Looney and P. C. Frederiksen, “Defence expenditures, external public debt and growth in developing countries,” Journal of Peace Research 1986, 23, pp. 329–338.
[17] J. P. Dunne, S. Perlo-Freeman, and A. Soydan, “Military expenditure and debt in small-industrialised economies: A panel analysis,” Defence and Peace Economics 2004, 15, pp. 125–132.
[18] R. Smyth and P. K. Narayan, “A panel data analysis of the military expenditure–external debt nexus: Evidence from six Middle Eastern countries,” Journal of Peace Research 2009, 46, pp. 235–250.
[19] A. D. Ahmed, “Debt burden, military spending and growth in Sub-Saharan Africa: A dynamic panel data analysis,” Defence and Peace Economics 2012, 23, pp. 485–506.
[20] W. R. J. Alexander, “The defence-debt nexus: Evidence from the high-income members of NATO,” Defence and Peace Economics 2013, 24, pp. 133–145.
[21] S. M. Paleologou, “A dynamic panel data model for analyzing the relationship between military expenditure and government debt in the EU,” Defence and Peace Economics 2013, 24, pp. 419–428.
[22] K. Zaman, I. A. Shah, M. M. Khan, and M. Ahmad, “Impact of military expenditure and economic growth on external debt: New evidence from a panel of SAARC countries,” Journal of Economic and Social Studies 2013, 3: 131–146.
[23] M. Azam and Y. Feng, “Does military expenditure increase external debt? Evidence from Asia,” Defence and Peace Economics 2015, DOI:10.1080/10242694.2015.1072371.
[24] X. Zhang, T. Chang, C.-W. Su, and Y. Wolde-Rufael, “Revisit causal nexus between military spending and debt: A panel causality test”, Economic Modelling 2016, 52, pp. 939–944.
[25] M. Shahbaz, T. Afza, and S. M. Shabbir, “Does defence spending impede economic growth? Cointegration and causality analysis for Pakistan,” Defence and Peace Economics 2013, 24, pp. 105–120.
[26] M. Shahbaz, S. M. Shabbir, and M. S. Butt, “Does military spending explode external debt in Pakistan?” Defence and Peace Economics 2013, DOI:10.1080/10242694.2012.724878.
[27] E. Zivot and D. W. K. Andrews, “Further evidence of great crash, the oil price shock and unit root hypothesis,” Journal of Business and Economic Statistics 1992, 10, pp. 251–270.
[28] M. H. Pesaran, Y. Shin, and R. J. Smith, “Bounds testing approaches to the analysis of level relationships,” Journal of Applied Econometrics 2001, 16, pp. 289–326.
[29] S. Sezgin, “An empirical note on external debt and defence expenditures in Turkey,” Defence and Peace Economics 2004, 15, pp. 199–203.
[30] P. Pedroni, “Panel Cointegration; Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the Purchasing Power Parity Hypothesis,” Econometric Theory 2004, 20, pp. 597–625.
[31] M. Shahbaz, “Income inequality-economic growth and non-linearity: a case of Pakistan,” International Journal of Social Economics 2010, 37, pp. 613–736.
[32] D. Dickey and W. A. Fuller, “Distribution of the estimates for autoregressive time series with unit root,” Journal of the American Statistical Association 1979, 74, pp. 427–431.
[33] P. C. B. Phillips and P. Perron, “Testing for a unit root in time series regression,” Biometrika 1988, 75, pp. 335–346.
[34] G. Elliott, T. J. Rothenberg, and J. H. Stock, “Efficient tests for an autoregressive unit root. Econometrica 1996, 64, pp. 813–836.
[35] S. Ng and P. Perron, “Lag length selection and the construction of unit root tests with good size and power,” Econometrica 2001, 69, pp. 1519–1554.
[36] C. F. Baum, “A review of Stata 8.1 and its time series capabilities,” International Journal of Forecasting 2004, 20, pp. 151–161.
[37] M. Datta, “How real are the changes in sectoral GDP shares in the Indian economy?,” Journal of Quantitative Economics 2001, 9, pp. 169–182.
[38] R. H. Dholakia and A. A. Sapre, “Estimating structural breaks endogenously in India’s post-independence growth path: An empirical critique,” Journal of Quantitative Economics 2011, 9, pp. 73–87.
[39] M. H. Pesaran and Y. Shin, “An autoregressive distributed-lag modelling approach to cointegration analysis,” in Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, S. Strøm, S., Ed., United Kingdom: Cambridge University Press, 1999, pp. 371–413.
[40] S. Johansen and K. Juselies, “Maximum likelihood estimation and inferences on cointegration,” Oxford Bulletin of Economics and Statistics 1990, 52, pp. 169–210.
[41] R. F. Engle and C. W. J. Granger, “Cointegration and error correction representation: estimation and testing,” Econometrica 1987, 55, pp. 251–276.
[42] H. K. Pradhan, “External debt development and management: Some reflections on India,” Regional Workshop on Capacity–building or External Debt Management in the Era of Rapid Globalization, Thailand, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), 2004.
[43] H. Lütkepohl, “Structural vector autoregressive analysis for cointegrated variables,” AStA Advances in Statistical Analysis 2006, 90, pp. 75–88.
[44] P. K. Narayan, “The saving and investment nexus for China: Evidence from cointegration tests,” Applied Economics 2005, 37, pp. 1979–1990.
[45] A. Banerjee, J. Dolado and R. Mestre, “Error-correction mechanism tests for cointegration in single equation framework,” Journal of Time Series Analysis 1998, 19, pp. 267–283.
[46] G. Koop, M. H. Pesaran, and S. M. Potter, “Impulse response analysis in nonlinear multivariate models,” Journal of Econometrics 1996, 74, pp. 119–147.
[47] C. Brooks, Introductory Econometrics for Finance. Cambridge: Cambridge University Press, 2002.