Military Spending and Economic Growth in China: A Regime-Switching Analysis

39 Pages Posted: 2 Jun 2014

See all articles by Faek Menla Ali

Faek Menla Ali

University of Sussex -University of Sussex Business School

Ourania Dimitraki

University of Bedfordshire; University of Essex - Essex Business School

Date Written: May 31, 2014

Abstract

This article investigates the impact of military spending changes on economic growth in China over the period 1953 to 2010. Using two-state Markov switching specifications, the results suggest that the relationship between military spending changes and economic growth is state dependent. Specifically, the results show that military spending changes affect economic growth negatively during a slower growth-higher variance state, while positively within a faster growth-lower variance one. It is also demonstrated that military spending changes contain information about the growth transition probabilities. As a policy tool, the results indicate that increases in military spending can be detrimental to growth during slower growth-higher volatility periods.

Keywords: China; Economic growth; Markov-switching; Military spending

JEL Classification: C22, H30, O40

Suggested Citation

Menla Ali, Faek and Dimitraki, Ourania, Military Spending and Economic Growth in China: A Regime-Switching Analysis (May 31, 2014). Applied Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2444097

Faek Menla Ali (Contact Author)

University of Sussex -University of Sussex Business School ( email )

Falmer
Brighton, East Sussex BN1 9SL
United Kingdom

Ourania Dimitraki

University of Bedfordshire ( email )

Vicarage St
Luton, LU1 3JU
United Kingdom

University of Essex - Essex Business School ( email )

Elmer Approach Southend on Sea
Essex, SS11LW
United Kingdom

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