The Threshold Effect of Military Spending on Economic Growth: A Panel Smooth Transition Regression Model

Articles in Press

Document Type : Original Article

Authors

1 Professor of Economics, Department of Economics, Faculty of Social Scinces, University of Mohaghegh Ardabili

2 Associate Professor of Economics, Department of Economics, Faculty of Social Scinces, University of Mohaghegh Ardabili

3 Master of Economics, Department of Economics, Faculty of Social Scinces, University of Mohaghegh Ardabili

10.22075/jem.2025.36105.1955

Abstract

This study utilized a panel smooth transition regression model to investigate the effect of military spending on economic growth in selected oil-producing countries from 1980 to 2022. The findings reveal that the coefficient for military spending in the first regime is -0.1787, suggesting that increases in military expenditure are associated with a decrease in economic growth. In the second regime, the coefficient rises sharply to -6.3539, indicating a significantly greater negative effect on economic growth. Additionally, the lagged military spending variable in the first regime shows a positive coefficient, implying that military spending from the previous year positively influences economic growth in the current year. However, in the second regime, this effect turns negative, exacerbating the adverse impact of rising military spending on economic growth. Overall, the results demonstrate that crossing the threshold limit of $575 million leads to an intensified negative effect of military spending on economic growth, with a transition speed of 40.22.

Keywords

Journal of Econometric Modelling

Articles in Press, Accepted Manuscript
Available Online from 11 March 2025

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