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Is Geopolitical Risk a Reason or Excuse for Bigger Military Expenditures?

  • Asiye Tutuncu ORCID logo , Yasar Bayraktar ORCID logo EMAIL logo and Khalid Khan ORCID logo
Published/Copyright: October 11, 2024
Peace Economics, Peace Science and Public Policy
From the journal Peace Economics, Peace Science and Public Policy Volume 30 Issue 4

Abstract

This study aims to investigate the relationship between military expenditures and geopolitical risk using the Panel Fourier Toda-Yamamoto Causality test over the 1993–2020 period. Considering structural changes, the findings reveal that geopolitical risk fluctuations in Colombia, India, South Korea, Russia, Saudi Arabia, Ukraine, and the USA affect military expenditures. Conversely, the results point out that for Chile, Israel, Russia, Taiwan, and the UK, military expenditures appear to cause geopolitical risk. This highlights that changes in military spending across nations trigger an arms race due to the perception of increased threat by neighbours and/or interest groups. In a nutshell, the results show a complex interplay between military expenditures and geopolitical risk, where changes in one can affect the other. Based upon this, policymakers must prioritize diplomacy, utilize international mediation/peacekeeping initiatives, develop military alliances, and commit to non-threatening military expenditures for regional stability.

Keywords: military expenditures; geopolitical risk; panel Fourier Toda-Yamamoto causality; arms race; Keynesian theory
JEL Classification: C33; H56; D81
Corresponding author: Yasar Bayraktar, College of Accountancy, Finance and Economics, Birmingham City Business School, Birmingham City University, Birmingham, UK, E-mail:

  1. Author contributions: All authors contributed to the study’s conception and design. Material preparation, data collection, and analysis: Asiye Tutuncu. Writing the first manuscript draft: Asiye Tutuncu and Yasar Bayraktar. Review and editing: Yasar Bayraktar and Khalid Khan. All authors read and approved the final manuscript.

  2. Competing interests: The authors declare they have no financial interests.

  3. Research funding: No funds, grants, or other support was received.

  4. Conflict of interest: No conflict of interest statement.

Appendix 1: Robustness Test

The Panel Fourier Toda-Yamamoto Causality Test was used to investigate the relationship between MILEX and the GPR Panel. The robustness test results are analyzed to see if they will change when subjected to further analysis using different techniques. For this reason, the Panel Fourier-Granger Causality test was used. In this test, the cross-section dependency is considered and analyzed with the bootstrap technique. According to Table 6, there is a one-way causal relationship between GPR and MILEX in South Korea, Saudi Arabia, Ukraine, and the USA. Table 7 demonstrates that there is in Taiwan a one-way causal relationship between MILEX and GPR. According to the Panel Fourier Toda-Yamamoto causality test findings, although a causal relationship was detected in similar countries, it was determined that the causality relationship occurred in fewer countries. The Panel Fourier Granger Causality test is conducted at the level where the variables are stationary in this case, which is the most significant factor. Information is lost when variables are analyzed, and their differences are used (Toda and Yamamoto 1995).

Table 6:

Geopolitical risk (GPR) granger cause military expenditures (MILEX).

Countries p k Wald stat. p-Value
Chile 1 1 0.922 0.337
Colombia 3 1 5.154 0.161
France 2 2 1.714 0.424
India 1 5 0.005 0.944
Israel 2 4 0.696 0.706
Korea, South 2 2 9.669*** 0.008
Russia 1 2 0.075 0.784
Saudi Arabia 1 2 2.636* 0.09
Taiwan 1 1 1.391 0.238
Turkey 1 1 0.472 0.492
The UK 2 2 0.159 0.923
Ukraine 1 3 7.755*** 0.005
The USA 2 2 4.837* 0.089
Panel test statistic 2.729**

  1. The maximum lag length is determined to be 3, and p is the optimal lag length. The significant test statistics are shown in italics. *, **, and *** p < 0.10, p < 0.05, and p < 0.01, respectively.

Table 7:

Military expenditures (MILEX) granger cause geopolitical risk (GPR).

Countries p k Wald stat. p-Value
Chile 1 1 1.944 0.163
Colombia 3 1 0.993 0.803
France 2 2 1.381 0.501
India 1 5 1.121 0.289
Israel 2 4 0.622 0.733
Korea, South 2 2 0.109 0.946
Russia 1 2 0.018 0.895
Saudi Arabia 1 2 0.008 0.928
Taiwan 1 1 4.371** 0.037
Turkey 1 1 0.017 0.897
The UK 2 2 0.476 0.788
Ukraine 1 3 0.109 0.741
The USA 2 2 1.846 0.397
Panel test statistic 1.001

  1. The maximum lag length is determined to be 3, and p is the optimal lag length. The significant test statistics are shown in italics. ** p < 0.05.

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Received: 2024-06-02
Accepted: 2024-09-27
Published Online: 2024-10-11

© 2024 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. The Economic Impact of Arms Spending in Germany, Italy, and Spain
  4. Defense Burden Sharing and Military Cooperation in the EU27: A Descriptive Analysis (2002–2023)
  5. Is Geopolitical Risk a Reason or Excuse for Bigger Military Expenditures?
  6. Asymmetric and Threshold Effect of Military Expenditure on Economic Growth: Insight from an Emerging Market
  7. Letters and Proceedings
  8. Examining the Military Spending Economic Growth Nexus in the Presence of Informality: Evidence from the Balkan Peninsula
https://doi.org/10.1515/peps-2024-0027
Keywords for this article
military expenditures; geopolitical risk; panel Fourier Toda-Yamamoto causality; arms race; Keynesian theory

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. The Economic Impact of Arms Spending in Germany, Italy, and Spain
  4. Defense Burden Sharing and Military Cooperation in the EU27: A Descriptive Analysis (2002–2023)
  5. Is Geopolitical Risk a Reason or Excuse for Bigger Military Expenditures?
  6. Asymmetric and Threshold Effect of Military Expenditure on Economic Growth: Insight from an Emerging Market
  7. Letters and Proceedings
  8. Examining the Military Spending Economic Growth Nexus in the Presence of Informality: Evidence from the Balkan Peninsula
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