Abdunasser Duella
The causation relationship between economic growth and military spending in developing countries was subject to intense debate in recent years. This study examines the causal relationship between aggregate government spending and economic growth in Algeria for the period 1980-2010. We also break down the aggregate government spending into military and civilian spending and assess their impact on economic growth. Both bivariate and multivariate co-integration is utilized to determine the type and direction of causality. Using Johansen’s co-integration procedure and VECM, the study showed the existence of uni-directional causality between economic growth and military spending. This study also uses the variance decomposition analysis to assess the dynamic effect of one variable on the other two variables in the model beyond the sample period.
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