The Impact of Oil Price Shocks on the Military Expenditure of Selected MENA Oil Exporting Countries: Symmetric and Asymmetric Co-Integration Analysis

Authors

1 Faculty of Economics and Management, Universti Putra Malaysia, Malaysia.

2 Center for Advanced Research (CARe), Universiti Brunei Darussalam, Gadong BE1410, Brunei.

3 College of Administration and Economics, University of Sulaimani, Sulaimani, Iraq.

Abstract

This paper examines the symmetric and asymmetric effects of oil prices on military expenditure of selected Middle East and North Africa (MENA) oil exporting countries. Using Linear Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) frameworks on annual data covers from 1960 to 2014, this paper documents that oil prices and military expenditure shares a stable long run relationship in all cases. The ARDL empirical findings reveal that oil price has a positive and significant effect on military spending in all cases except in the case of Kuwait and Tunisia. The NARDL results further reveal existence of asymmetric evidences that the increase in oil prices increase military spending while the decrease in oil prices reduce the military spending in the long-run for Saudi Arabia, Iran, Algeria, and Kuwait. In the short run, the results demonstrate the existence of asymmetry effect of oil price on military spending only for Iran and Algeria.
 

Keywords