Cueva,MG,;Correa,R.;Tulcanaza,AB;Cueva, L.

Regional and Sectoral Economic Studies 24-1(2024)

ECONOMIC GROWTH AND MILITARY EXPENDITURE IN ECUADOR: A

COINTEGRATION AND CAUSALITY APPROACH.
María Gabriela CUEVA-JIMÉNEZ*
Ronny CORREA-QUEZADA
Ana Belén TULCANAZA-PRIETO
Lucía CUEVA-RODRÍGUEZ

Summary: This research analyzes the relationship between military spending and
Ecuadorian economic growth, for the period 1960-2019, using econometric techniques of
cointegration (trace tests, maximum eigenvalue, limits test) and causality. The different
cointegration tests suggest that there is no long-term equilibrium relationship between the
variables of interest. In terms of causality, a unidirectional relationship is found from
economic growth to military spending. There is no evidence of causality in the opposite and
bidirectional direction.

Abstract: This research analyzes the relationship between military spending and Ecuadorian
economic growth, for the period 1960-2019, using econometric cointegration techniques
(trace tests, maximum eigenvalue, limits test) and causality.
The different cointegration tests suggest that there is no long-term equilibrium relationship
between the variables of interest. In terms of causality, a unidirectional relationship is found
from economic growth to military spending. There is no evidence of causality in the opposite
and bidirectional direction.
Keywords: economic growth, military spending, cointegration, causality.
JEL Classification: C32, H56, E22, E23, O54

1. Introduction

The relationship between military spending and economic growth has been the subject of
extensive empirical study in defense economics; however, there is no consensus on the
effects of defense spending on growth, because empirical evidence suggests effects.
positive, negative or null. For example, Alptekin and Levine (2012) indicate a positive effect
in developed countries; Dunne and Tian (2013) highlight that recent work presents evidence
in favor of a negative effect; and, Yesilyurt and Yesilyurt (2019) maintain that the influence
of military spending on growth is not significant.

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DATED: 03/07/2024 BY: JHOANA PACHECO