This study aims to examine relationship of military expenditure and economic
growth in different phases of military regimes in the context of Pakistan. This
study uses two-state Markov switching models with Constant Transition
Probability (CTP) and Time Varying Transition Probabilities (TVTP) for the
time period: 1973-2014. This investigation analyses two sorts of relations
between military expenditures and economic development through fixed
transition probability Markov exchanging models. To begin with, there is
negative connection between GDP growth and military expenditures during a
high variance state (i.e. having low economic growth). Second, there is
positive relation between both variables, during low variance state (i.e. having
higher economic growth) which is also supported by idea of Keynesian income
multiplier. Another, empirical test of time varying transition probability model
was used to capture the switch through indicator variable. Results of the study
suggest that chances of switching are increased from low to high economic
growth. The chances of switching increase from lower to higher economic
growth period (or high variance period) if non-military expenditure increases.
The study concludes that military expenditure and economic growth are state
dependent. If conditions of economy are stable then increase of expenditure
results in positive outcomes, otherwise, it affects negatively. Empirical
findings suggest that military spending should be planned in accordance to the
economic performance of the country.
1-Waqar Qureshi PhD Scholar, Department of Economics, AWKUM, Mardan, Pakistan2-Noor Pio Khan Pro-Vice Chancellor and Dean, University of Agriculture, Peshawar, Pakistan
Military expenditure, Economic growth, Markov switching models,Keynesian income multiplier.