Dynamic Analysis of the Impact of Military Expenditure on Economic Growth in Oil and Non-Oil Countries in the Middle East

Document Type: Research Paper


1 Assistant Professor, Department of Economics, Bu-Ali Sina University, Hamedan, Iran

2 Ph.D Candidate in Economics, Lorestan University, Khoram-Abad, Iran


Middle East is a strategic region because of its abundant oil reserves, hostile struggles among the countries, and threat of the radical groups. The countries of this region spend a large amount of their annual budgets on buying weapons and war armaments. The purpose of this paper is to study the impact of military expenditures on economic growth of oil and non-oil Middle East countries by a dynamic panel model during 1988-2012. The paper results show the negative impact of the military expenditures on economic growth of the Middle East countries which is more visible in oil countries than the non-oil ones.


  1. Al-Hamidi, Mohamed Talib (2012). ‘Oil and Regional Security Revisited: The Case of the Persian Gulf’. International Journal of Business and Social Science, 3(5):21-36.
  2. Anderson, T.W. & C. Hsiao (1981),Estimation of Dynamic Models with Error Components’. Journal of the American Statistical Association, 76: 589-606.
  3. Ando, S.(2009),Impact of DE on Economic Growth: Panel Data Analysis Based on the Feder Model’. The International Journal of Economic Policy Studies, 4(8): 141-154.
  4. Anwar, M.A., Rafique, Z. & S.A. Joiya(2012).Defense Spending-Economic Growth Nexus: A Case Study of Pakistan’, Pakistan Economic and Social Review, 50 (2): 163-182.
  5. Arellano, M. & Bond, S. (1991). ‘Some Test of Specification for Panel Data: Monte Carlo Evidence and Application to Employment Equations’. Review of Economic Studies, 58: 277-297.
  6. Arellano, M. & Bover, O. (1995). ‘Another Look at the Instrumental Variable Estimation of Error Component Models’, Journal of Econometrics, 68:29-51.
  7. Atesoglu, H.S.(2002).Defense Spending Promotes Aggregate Output in the United States: Evidence from Co-integration Analysis’. Defense and Peace Economics, 13(1): 55-60.
  8. Baltagi, B. (2005), Econometric Analysis of Panel Data, John Wiley & Sons Ltd.
  9. Benoit, E. (1973), Defense and Economic Growth in Developing Countries, Boston, MA: Health and CO., Lexington Books.
  10. Biswar, B. & Ram, R. (1986). ‘Military Spending and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence’, Economic Development and Cultural Change, 34(2): 361-372.
  11. Blundell, R. & Bond, S. (1998). ‘Initial Conditions and Moment Restrictions in Dynamic Panel Data Models’. Journal of Econometrics, 87:115-143.   
  12. Dunne, J.P. (2010). Military Spending and Economic Growth in Sub-Saharan Africa, www.researchgate.net
  13. Dunne, P., & Nikolaidou, E. (2012). ‘Defense Spending and Economic Growth in the EU15’. Defense and Peace Economics, 23)6(:537-548.
  14. Dunne, P., Smith, R. & Willenbockel, D. (2005). ‘Models of ME and Growth: A Critical Review’. Defense and Peace Economics, 16)6(:449-461.
  15. Farzanegan, M.R. (2011), ‘Military Spending and Economic Growth: The Case of Iran’. MPRA Paper, No. 35498.
  16. Feder, G. (1983), ‘On Export and Economic Growth’. Journal of Development Economics, 12: 59-73.
  17. Halicioglu, F.(2004),Defense Spending and Economic Growth in Turkey: An Empirical Application of New Macroeconomic Theory’. Review of Middle East Economics Finance, 2(3): 193-201.
  18. Hartly, K. (2005), Defense Spending and its Impact on the National Economy. Center of Defense Economics, University of York.
  19. Hasani Sadrabadi, M.H. & Kashmari. A. (2008). ‘The impact of ME on economic growth and its indirect effect on private consumption in Iran’. Journal of Economic Research, 8 (2): 25-40.
  20. Huang, C. & Mintz, A. (1991). ‘DE and Economic Growth: The Externality Effect’. Defense Economics, 3: 35-40.
  21. Knight, M., Loayza, N. & Villanueva, D.  (1996). ‘The Peace Dividend: Military Spending Cuts and Economic Growth’. IMF Staff Papers, 43: 1-44.
  22. Mankiw, N.G., Romer, D. & Weil, D.N. (1992). ‘A Contribution to the Empirics of Economic Growth’. Quarterly Journal of Economics, 107: 407–437.
  23. Matays, L. & Sevestre, P. (1991). ‘The Econometric of Panel Data: a handbook of the theory with application’. Kluwer Academic Publisher, Dordrecht.
  24. Narayan, P.K. & Smyth, R. (2009). ‘A Panel Data Analysis of the ME-External Debt Nexus: Evidence from Six Middle Eastern Countries’. Journal of Peace Research, 235-250.
  25. Ozun, A. & Erbaykal, E. (2011). ‘Further Evidence on Defense Spending and Economic Growth NATO Countries’.Working Paper, No. 1119.
  26. Shahbaz, M., Afza, T. & Shabbir, M.S. (2013). ‘Does Defense Spending Impede Economic Growth? Co-integration and Causality Analysis For Pakistan’. Defense and Peace Economics, 24(2): 105-120.
  27. SIPRI (Stockholm International Peace Research Institute),Yearbooks Armaments and Disarmaments and International Security, SIPRI-Oxford University Press, New York.Various issues.
  28. Smith, R. (1980). ‘ME and Investment in OECD Countries: 1954-1973’. Journal of Comparative Economics, 4: 19-32.
  29. Smith, R.(1995). Demand for ME, by Hartley and Sandler, Amsterdam, 1: 69-88.
  30. Tayebi, S.k. Haji Karami, M, and Sariri, H. (2010). ‘Analysis of financial and commercial openness degree on financial development of Iran and trading partners’. Journal of Economic Research. 4: 39- 60.   
  31. Yildirim, J., Ocal, N. & Keskin, H.  (2011) ‘ME, Economic Growth and Spatial Spillovers: A Global Perspective’. International Conference on Applied Economics: 811-821.
  32. Http:// data.worldbank.org/indicator/MS.MILXPND.GD.ZS