Military Spending and Economic Growth in South Africa

Abstract

A number of studies consider the relation between military spending and economic growth using Granger causality techniques. Some studies have used samples of groups of countries, finding no consistent results. Other studies have focused on individual countries, which permits greater knowledge of the structure of the economy and the budget. This study adds to the literature by providing an analysis of South African data, a particularly interesting case study given the considerable changes that have taken place in recent years. It is a developing country with a developed military sector and a relatively high military burden. In addition to analyzing South African data using standard “pre-cointegration” Granger causality techniques, this study employs modern vector autoregressive methodology that uses cointegration. This is an important improvement in the econometric analysis and indicates a significant negative impact of military spending on growth in South Africa that is not apparent when using the standard techniques.