The effect of defence expenditure on economic growth in Zambia 1988 to 2015
Bwalya, Malama Richard
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The aim of this research was to investigate the effect of defence expenditure on economic growth as measured by real gross domestic product (GDP) in the presence of investment proxied by gross fixed capital investment, unemployment, lending rate, inflation proxied by consumer price index and labour growth rate in Zambia for the years 1988 to 2015. In this research, relationships and long-run effects of the independent variables aforementioned were analyzed. In addition to these variables, a number of other macroeconomic variables based on theory were included in the model, that is, exchange rate growth rate, imports growth rate and exports growth rate. Stationarity tests were carried out specifically on the variables used in the model. These tests were carried out using the Augmented Dickey Fuller (ADF) and the Philips-Peron tests. Further, the ARDL bound approach to co-integration was employed to determine the long run equilibrium relationship among the variables of the model. The findings indicated the existence of a significant long run relationship among the variables. The results further showed that military expenditure has no significant long run effect on economic growth, ceteris paribus. However, this relationship became significant for the short run. Specifically, the results indicated that a 1% increase in military expenditure would lead to a 0.30% decrease in economic growth, ceteris paribus. Finally, the -0.803153 ECM (-1) coefficient, which is the error correction mechanism coefficient, confirmed the existence of the long run relationship among the variables in the model at 5% level of significance. This indicated further that the departure from the long run growth path due to a certain shock is adjusted by 80.3% every period. As such, the Zambian government need to consider decreasing expenditure on defence, thus defence expenditure entertained a major opportunity cost on major development services in education and health.
The University of Zambia