Impact of Defence Expenditure on External Debt in Turkey: An Empirical Analysis

Serap Barış, Hilal Yokuş

Abstract


Today, defence services are inevitable in the survival struggles of nations in our global world as in the past. States maintain their struggles against internal and external threats/dangers in order to protect their independence and defence expenditures are required for the execution of this struggle. A country with limited sources may come up with some negative economic outcomes when they increase their defence expenditures. First of all, their public expenditures increase. Given the fact that financing of these increased public expenditures is enabled through taxation or external debt, it can be said that increase of defence expenditures can also increase domestic and external debt. However; when empirical literature is analyzed, it is understood that impacts of defence expenditures especially on economic growth are analyzed while their impacts on external debt are not necessarily analyzed. In fact; since domestic sources are inadequate in developing countries (low level of savings), external debt becomes an inevitable instrument of policy in the financing of public expenditures. From these facts, this study aims at analyzing long term and short term relationship between defence expenditures and external debt in Turkey. Therefore, cointegration and accordingly VAR (Vector Autoregressive) or VEC (Vector Error Correction) model will be used to carry out the analysis by using data of Turkish economy for 1970-2015 period.


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