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Investigating Time-Varying Causality Between Military Spending and Macroeconomic Indicators in the United States

  • Isiaka Akande Raifu ORCID logo and Joshua Adeyemi Afolabi ORCID logo EMAIL logo
Published/Copyright: November 6, 2023
Peace Economics, Peace Science and Public Policy
From the journal Peace Economics, Peace Science and Public Policy Volume 29 Issue 4

Abstract

Military expenditures constitute a large chunk of the United States’ annual budget and its macroeconomic implications had been modelled using the Granger causality test, which suffers power loss when variables are subjected to structural breaks. This study explored alternative approaches by applying both traditional VAR-based Granger causality and the time-varying causality test techniques to obtain new evidence on the causality between military spending and selected macroeconomic indicators (economic growth, investment, unemployment and inflation rate) in the United States. Relevant data covering 1972Q1–2021Q2 were analysed. The results of the VAR-based Granger Causality test are dominated by a unidirectional causality that runs from macroeconomic variables to military spending and the result are robust to alternative military spending measures. However, the results of the time-varying causality method show that bidirectional causality dominates the relationship between military spending and some macroeconomic indicators, especially economic growth, investment and unemployment. With the variance observed in the causality between military spending and macroeconomic indicators, policymakers need to moderate military spending to achieve desired economic outcomes.

Keywords: military spending; economic growth; investment; unemployment rate; inflation rate; time-varying causality
JEL Classification: C29; E62; O40
Corresponding author: Joshua Adeyemi Afolabi, Centre for the Studies of Economies of Africa (CSEA), 1280 Kabir Rabiu Road, Mabushi, FCT, Abuja, Nigeria, E-mail:

  1. Ethics approval and consent to participate: Not applicable.

  2. Consent for publication: Not applicable.

  3. Availability of data and material: All material and dataset are available on request. The data that support the findings of this study are openly available in Bureau of Economic Analysis at http://www.bea.gov/National/nipaweb/Index.asp and the Federal Reserve Bank of St Louis at https://fred.stlouisfed.org/.

  4. Funding: The authors do not receive any financial support for this research.

  5. Authors’ contributions: IAR wrote the introduction, methodology and conclusion, and also generated the estimation results. JAA did the literature review, interpreted the empirical results, proofread the manuscript to ensure consistency and formatted the paper.

  6. Competing interests: No potential competing interest of any form was reported by the authors.

Appendix: Baseline Results: Military Spending (US$)

Time-Varying Causality Between Military Spending and Economic Growth

Time-Varying Causality Between Military Spending and Investment

Time-Varying Causality Between Military Spending and Unemployment

Time-Varying Causality Between Military Spending and Inflation

Robustness: Military Spending (% of GDP)

Time-Varying Causality Between Military Spending and Economic Growth

Time-Varying Causality Between Military Spending and Investment

Time-Varying Causality Between Military Spending and Unemployment

Time-Varying Causality Between Military Spending and Inflation

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Received: 2023-08-07
Accepted: 2023-10-18
Published Online: 2023-11-06

© 2023 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. The European Union and Achieving Peace in Ukraine
  4. Connectedness Among Geopolitical Risk, Inflation, Currency Values, and Exports by TVP-VAR Analysis: A Worldwide Perspective
  5. Investigating Time-Varying Causality Between Military Spending and Macroeconomic Indicators in the United States
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https://doi.org/10.1515/peps-2023-0044
Keywords for this article
military spending; economic growth; investment; unemployment rate; inflation rate; time-varying causality

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. The European Union and Achieving Peace in Ukraine
  4. Connectedness Among Geopolitical Risk, Inflation, Currency Values, and Exports by TVP-VAR Analysis: A Worldwide Perspective
  5. Investigating Time-Varying Causality Between Military Spending and Macroeconomic Indicators in the United States
  6. An Empirical Investigation on the Determinants of International Migration
  7. Determinants of Military Spending in Africa: Do Institutions Matter?
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