The relationship between expenditure on defence and economic growth in Spain

Abstract

Purpose: The objective of this article is to perform a causality analysis between defence expenditure and the economic growth in Spain from 1960 to 2018. Design/Methodology/Approach: The VAR model together with the Granger causality test has been used so as to study which is the relationship between the military expenditure and the economic growth. In addition, using France as a benchmark, the results obtained, considering the same parameters, are in line with the obtained for Spain. Findings: The results suggest the existence of a causal relation turning from defence expenditure to economic growth. Practical Implications: In contrast with other studies in which no single conclusion can be arrived at concerning the possible positive or negative effects of defence investment on a country's economy, this work has obtained results that can serve to inspire relevant aspects of economic policy. Originality/value: The relationship between defence expenditure and its impact on the growth of the economy has aroused the interest of not only numerous authors, but also of the countries which are trying to get a clear idea of the economic impact of defence spending before choosing to reduce expenses in order to control both the deficit and the public debt.