THE IMPACT OF DEFENSE EXPENDITURE ON ECONOMIC GROWTH

THE IMPACT OF MILITARY SPENDING ON ECONOMIC GROWTH

The impact of military spending on the economy has always been a subject of controversy among scholars. Particularly in the last four decades, there has been a growing interest in the role of military expenditure

CHAPTER ONE

INTRODUCTION

1.1Background to the study

The important role which the government plays in an economy cannot be overemphasized. Two amongst these very vital roles, as noted by Adam Smith (1776), are to provide the necessary social amenities needed for production and, to protect the society from violence and invasion of other independent societies. Absence of peace and security are some of the major obstacles to development (Dunne et al., 2004). This established the bedrock of the need for security in countries of the world today.

The safety of persons and property from internal and external threats is important for the operation of markets because it is seen as an incentive for investment and sustainable economic growth. This apparently explains why most nations in the world today allocate a huge chunk of its inadequate resources in the military and other law enforcement agencies. Military spending is the amount of financial resources dedicated by a nation or state, to raising and maintaining armed forces.

The impact of military spending on the economy has always been a subject of controversy among scholars. Particularly in the last four decades, there has been a growing interest in the role of military expenditure in the developing countries. The area that has received the most attention has been whether military spending promotes or hampers economic growth. Much of the recent researches on this area have been from the work of Benoit (1973).

The basis of their argument lies in the crowding-out effect, in that inadequate resources are taken off from productive sectors of the economy. Most economists and scholars pre-empt a negative relationship between defense spending and economic growth in the less developed countries or in the region of heightened conflict and civil war. Researches in this area have been rather disappointing, the relationship between defense spending and economic growth could be positive, negative and a times inconclusive.

The general purpose of this study, therefore, is a reappraisal of the impacts in which military expenditure have on economic growth in other to determine the nature of the relationship and also to make suggestions on the appropriate level of expenditure required to maintain peace and security with sustainable economic growth.

1.2 Statement of Problem

Nigeria the “giant of Africa” as she is fondly called, is the most populous country in Africa and it’s abundantly blessed with mineral and agricultural resources. She is the largest producer of oil in Africa. It is so distressing that a country so endowed with all these natural resources is battling with the issue of security.

In recent times there have been rising cases of social unrest in the country. The country has witnessed a sudden upsurge in violent activities from disgruntled factions or sects which cut across various ethnic and religious origins. Some of the claims have been found to be politically or religiously motivated. For example we have the Independent People of Biafra (IPOB) in the southeast who are vehemently advocating for the right to secede from the country, the “Boko Haram” in the north who is known for their evil plot of abducting innocent schoolgirls and planting bombs in public places all in an attempt to Islamize the nation. The Niger Delta avengers who make claims of fighting for the rights and privileges of the Niger Delta people, by kidnapping expatriates and government officials all in an attempt to ensure their demands are being met. There are also several cases of pipeline vandalism, armed robbery etc, which are all cases incite that have raised concerns for the issue of national security to be addressed.

It is public knowledge that Nigeria is far behind other industrialized countries in its pursuit of being developed and that the only way we can achieve development is by getting the necessary assistance from the developed countries. But in the light of such a deplorable state of affairs, it is no secret that a country like ours would have a hard time achieving this goal of being developed because no foreign investor would be willing to invest in a troubled environment.

It is on this note that the federal government has put a large chunk of planned expenditure to finance the defense sector, so as to create a permissive environment for economic activities. But a lot is still left to be desired because it appears the increase in military spending has failed to provide the much needed peace and security which is the necessary precondition for sustainable economic growth and development.

This is the state of affairs that has induced the present study. Accordingly, the study is undertaken to find out if the increasing allocation of federal government expenditure to the defense sector is justified or not. It aims to find out the impact which rising military spending has on economic growth and how best to strike a balance between expenditure on defense and capital expenditure.

1.3 Aim and Objectives of the study

The aim of this study is to examine the impacts of military spending on economic growth in Nigeria.

Specifically, it will

1. Analyze the relationship between military spending and economic growth.
2. Examine the factors that account for the increase in military spending within the period.
3. Examine if military expenditure has the desired/intended effect on security and economic growth.

1.4 Research Hypothesis

This study is guided by the hypothesis stated in the alternative form.

HA: There is a significant relationship between military expenditure and economic growth in Nigeria.

1.5 Scope and Limitations of the Study

This research work focuses on the impact of military spending on economic growth with particular reference to Nigeria. The research work spans from the period, 1980-2017. Nigeria is rated among the top list of countries that has and is still bedeviled by the problem of insecurity. The time frame covered and data being used is expected to reveal if the yearly increase in federal government allocation of its expenditure to the defense sector has mitigated the harmful effects in which insecurity has on economic growth and development.

Factors that would likely present a great challenge and consequent limitations to this study include the quantity and quality of requisite data, time frame, financial resources, and available research materials

1.6 Research Design

The study “The impact of defense spending on economic growth” shall be empirical. Data will be collected on the hypothesized variables from 1980-2017. The data have been used shall be largely the secondary type and the main source shall be from www.indexmundi.com (a data portal that gathers reliable facts and statistics from multiple sources and turns them into easy to use visuals). Other sources include libraries and publications from the ministry of budget and national planning.

The model shall specify a functional relationship between economic growth and total capital military spending, total recurrent military spending, and aggregate agricultural expenditure. This would involve a simple regression. The ordinary least squares regression method will be adopted.

1.7 Method of Analysis

The main analytical tool to be used is the ordinary least square method (OLS) of multiple regressions. It is a tool adopted for regression analysis. As noted by Onuchukwu and Adoghor (1999:39), the regression analysis describes the relationship between variables. Econometric technique of multiple regressions will be used in the empirical estimations and testing stage of this study. This is due to the fact that the model has three variables, one dependent and the others explanatory.

It is common knowledge that time-series data is known to have the property of non-stationary (Maddalla, 2001). Hence running a regression on non-stationary data would result in a spurious (nonsense) regression (Granger, 1979). This study, therefore, examined the unit root property of the variables before running a regression on them. Thus an Augmented Dickey-Fuller and a Philip Perron test were being done on the variables so as to ascertain if the data on the variables were stationary or not.

It is also widely believed to be wrong for researchers in econometrics to proceed straightaway into a regression analysis on differenced variables without first ascertaining the long-run relationship existing among the variables being studied, thus the need for a cointegration test to be employed.

On the realization of co-integration among the time series, an Error Correction Model (ECM) was applied in other to ascertain how any disequilibrium in the short run of the model would be adjusted in the long run.

In addition to the other analysis being done the following diagnostic test would be performed namely.

• Model specification: The Ramsey test would be employed herein other to examine the model specification bias.
• Normality Assumption: the Jarque Bera (JB) test shall be used for this
• Serial correlation: to ascertain the presence of serial correlation of the model, the Breusch Godfrey (BG) test was also applied
• Heteroscedasticity: the assumption of homoscedasticity test using ARCH-Test approach was employed in this research work.

1.8 Significance of the Study

This work examines the impacts of military spending on economic growth in Nigeria within the period (1980-2017).

This study is expected to widen the awareness of the role played by military spending towards enhancing sustainable economic growth and development in Nigeria.

Also, the work will be of social and political relevance because it would serve as an eyeopener to political leaders and economic planners in that, it would reveal if the yearly increase in military spending creates the enabling environment for sustainable economic growth or retards economic growth by diverting inadequate financial resources from investment and other productive activities.

Apart from the impacts of the findings, the recommendations of this study will help us know if the yearly increase in military spending is justified or not? So as to come up with other alternative or better ways of maintaining peace and tranquility, as well as sustainable economic growth.

Furthermore, this work by providing ready answers to the numerous existing research questions is expected to be of tremendous assistance to not just the public sector and development students, but also to anyone who is interested in carrying out research on military expenditure and other related areas.