A new look at military expenditures-growth nexus in the EU: Old members vs. new members

Abstract

Unlike previous milex-growth studies in the EU, this paper investigates this issue in context of the older and the newer members by providing a comparative analysis within a panel framework. Annual data ranging from 1988 to 2012 are used for the two panel groups in the presence of capital stock. Pedroni’s heterogeneous panel cointegration results indicate the existence of a long-run equilibrium between military expenditures and economic growth both for the new and the old members. The findings from panel error correction model show that one size fits all in the short-run whereas the difference stems from the long-run. Once the validity of feed-back hypothesis is confirmed in the old members, results of new members provide a support of growth detriment hypothesis as such in the short-run results. The implications of these results are further discussed.