Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter September 15, 2018

Military Expenditure and External Debt in South Asia: A Panel Data Analysis

  • Shujaat Abbas ORCID logo EMAIL logo and Shahida Wizarat


This study investigates the effect of military expenditure on the exploding external debt in five major South Asian economies, i.e. Pakistan, Bangladesh, India, Nepal and Sri Lanka from 1990 to 2015 using panel fixed effect regression model. The estimated result reveals that the external debt of selected South Asian countries is positively determined by their military expenditure, and negatively explained by their domestic investment activities. The study urges the efficient utilization of available capital resources into more productive investment activities to create employment for the labor force. The future prosperity of the region lies in the peaceful resolution of all outstanding disputes and a corresponding reduction in military spending that can make the region safe for domestic and international investments.

JEL Classification: C23; F21; F34; O10


Alami, R. (2002). Military Debt: Perspectives from the Experience of Arab Countries. Defence and Peace Economics, 13(1), 13–30.10.1080/10242690210964Search in Google Scholar

Ahmed, A. D. (2012). Debt Burden, Military Spending And Growth In Sub-Saharan Africa: A Dynamic Panel Data Analysis. Defence and Peace Economics, 23(5), 485–506.10.1080/10242694.2011.627163Search in Google Scholar

Azam, M., & Feng, Y. (2017). Does military expenditure increases external debt? Evidence from Asia. Defence and Peace Economics, 28(5), 550–567.10.1080/10242694.2015.1072371Search in Google Scholar

Benoit, E. (1973). Defense and economic growth in developing countries. Lexington, MA: Lexington Books.Search in Google Scholar

Brzoska, M. (1983). The military related external debt of third world countries. Journal of Peace Research, 20(3), 271–277.10.1177/002234338302000308Search in Google Scholar

Caruso, R., & Domizio, M. D. (2016). Interdependence between US and European military Spending: A panel cointegration analysis (1988–2013). Applied Economics Letters, 23(4), 302–305.10.1080/13504851.2015.1071466Search in Google Scholar

Dunne, J. P., Perlo-Freeman, S., & Soydan, A. (2004). Military expenditure and debt in South America. Defence and Peace Economics, 15(2), 173–187.10.1080/1024269032000110540Search in Google Scholar

Esener, S. C., & Ipak, E. (2015). Expanding effects of military expenditures on external debt in developing countries. Journal of Business, Economics, and Finance, 4(4), 617–632.10.17261/Pressacademia.2015414532Search in Google Scholar

Hassan, M. K., Waheed-uz-zaman, M., & Rahman, A. (2003). Defense expenditure and economic growth in the SAARC countries. The Journal of Social, Political, and Economic Studies, 28(3), 275–293.Search in Google Scholar

Hausman, J. (1978). Specification Tests in Econometrics. Econometrica, 46(6), 1251–71.10.2307/1913827Search in Google Scholar

Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels’. Journal of Econometrics, 115(1), 53–74.10.1016/S0304-4076(03)00092-7Search in Google Scholar

Karagol, E. (2006). The relationship between external debt, defence expenditure, and GNP revisited: The case of Turkey. Defence and Peace Economics, 17(1), 47–57.10.1080/10242690500369199Search in Google Scholar

Kollias, C., Manolas, G., & Paleologouc, S.-M. (2004). Military expenditure and government debt in Greece: Some preliminary empirical findings. Defence and Peace Economics, 15(2), 189–197.10.1080/1024269032000110559Search in Google Scholar

Leibenstein, H. (1957). Economic backwardness and economic growth. New York: John Wiley & Sons.Search in Google Scholar

Levin, A., Lin, C.-F., & Chu, C.-S. J. (2002). Unit root test in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24.10.1016/S0304-4076(01)00098-7Search in Google Scholar

Looney, R. E. (1989). The influence of arms imports on third world debt. The Journal of Developing Areas, 23(2), 221–232.Search in Google Scholar

Looney, R. E. (1998). Foreign capital flows and defense expenditures: Patterns of causation and constraint in Pakistan. Canadian Journal of Development Studies, 19(1), 117–132.10.1080/02255189.1998.9669740Search in Google Scholar

Looney, R.E., & Frederiksen, P.C. (1986). Defense Expenditure, External Public Debt, and Growth in Developing Countries. Journal of Peace Research, 23(4), 329–337.10.1177/002234338602300403Search in Google Scholar

Narayan, P. K., & Narayan, S. (2008). Does military expenditure determine Fiji’s exploding debt levels? Defence and Peace Economics, 19(1), 77–87.10.1080/10242690701453784Search in Google Scholar

Nikolaidou, E. (2016). The role of military expenditure and arms imports in the Greek debt crisis. The Economics of Peace and Security Journal, 11(1), 18–27.10.15355/epsj.11.1.18Search in Google Scholar

SIPRI. (2017). Military expenditure data base. Stockholm International Peace Research Institute. in Google Scholar

Smyth, R., & Narayan, P. K. (2009). Panel data analysis of the military expenditure-external debt Nexus: Evidence from Six Middle Eastern countries. Journal of Peace Research, 46(2), 235–250.10.1177/0022343308100717Search in Google Scholar

Waheed, A. (2017). Determinants of external debt: A panel data analysis for oil and gas exporting and importing countries. International Journal of Economics and Financial Issues, 7(1), 234–240.Search in Google Scholar

Wijeweeraa, A., & Webba, M. J. (2011). Military spending and economic growth in South Asia: A panel data analysis. Defence and Peace Economics, 22(5), 545–554.10.1080/10242694.2010.533905Search in Google Scholar

World Bank. (2017). World development indicators. Washington. DC, USA: The World Bank.Search in Google Scholar

Published Online: 2018-09-15

©2018 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 10.6.2023 from
Scroll to top button