Political Economy of Growth Effects of Defense Expenditure in Nigeria

Political Economy of Growth Effects of Defense Expenditure in Nigeria

Ezebuilo R. Ukwueze (University of Nigeria Nsukka, Nigeria), Chinasa E. Urama (University of Nigeria Nsukka, Nigeria), Henry T. Asogwa (University of Nigeria Nsukka, Nigeria) and Oliver E. Ogbonna (University of Nigeria Nsukka, Nigeria)
DOI: 10.4018/978-1-5225-4778-5.ch021
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Abstract

National security is as important as the existence of a nation. Nigeria has witnessed consistent rise in defense expenditure, with attendant opportunity costs. Internal threats have contributed immensely to the rise in defense expenditure as proliferation of arms and uprising of different ethno-rival groups and incipient militancy and insurgency have created insecurity in the country. Similar pressure and general insecurity has been intensified by increasing spate of kidnapping, politically motivated killings, ethno-religious uprisings, and terrorist web-like war by the Boko Haram sect. It is expedient to investigate the political motivation behind the military expenditure rise. This study is poised to estimate the politico-economic determinants of military expenditure in Nigeria using unrestricted VAR model for estimation. The data were sourced from World Bank's WDI, ICRG data, transparency international and SIPRI data, using Stata 13 software. The results show that ethnic violence, index of corruption, quality of governance, population growth, freedom from corruption affect military expenditure. The authors recommend that improved quality of governance will reduce corruption, ethnic violence, and improve welfare.
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Introduction

National security is as important as the existence of a nation, that is, why different countries spend fortunes to maintain both internal and external security. Military expenditure occupies an important portion in every nation’s national budget. Defence literature provides plethora of studies on relationship between military spending and economic growth with mixed results. The seminal work of Benoit (1973, 1978) pioneered the study of the impact of defence expenditure on economic growth, though it generated controversies that led to the development of a conceptual framework for the relationship between military expenditure and economic growth. It has been theorized as a positive effect of military expenditure and concluded that the additional resources used for procurement of military wares would leave fewer resources for investment in other public and private productive activities. But this conclusion was not fully accepted by scholars; Looney (1990) showed that certain conditions are necessary for military expenditures to have a positive effect on economic growth. However, Benoit’s conclusion was rejected by Deger (1986) who reasons that increased military expenditure decreases growth rates because it reduces the capital available for investment. Dommen and Maizels (1988) also rejected this conclusion because “the armed forces are relatively unproductive - in the sense of contributing to capital formation.”

Two principal types of explanations have been advanced to account for changing military expenditures: the first relies primarily on influences exogenous to the nation, the second focuses on internal considerations (Nincic & Cusack, 1979). It should be noted that most writers who followed the traditional method rely more or less on the well-known and pioneer work of Lewis Richardson (1960), who first popularized and formalized the dynamics of arms races. The Richardson’s model was based on intuitive plausibility and theoretical parsimony, where he inferred that the driving force behind fluctuations in military spending was continuously and apparently the process of action and reaction between two rival nations. This framework has been criticized on the ground that there has not been compelling evidence in support of the ‘action-reaction’ hypothesis. In addition, the framework paid little attention to how actual decisions are made or to the institutional procedure surrounding them. Again, it said nothing about the actors and interest groups involved, or of the perceptions and motivations of the relevant parties, neither did it say anything about the politics and behavior of the key players in terms of corruption.

Due to the latter shortcoming, the second major perspective has the potential for a partial remedy, since it is based on organizational dynamics of the state. The fact remains that the decision to acquire additional military equipment and other resources is enshrined in the organizational and bureaucratic set up. However, the decision-making process is a complex one which can lead to co-opting the budgetary allocations into routine requests, and which will be referred to legislative organ from time to time.

McKinlay’s (1989) study showed that budget size predicts military expenditure in a positive direction, and that Gross Domestic Product (GDP) is the single best predictor of military expenditure. We should note that other non-economic variables are also important predictors of military expenditure such as foreign policy, arm races, external aggression, etc. For example, higher population of city necessitates higher demand for security and thus higher increase in defence expenditure. Literacy rate is also a factor which increases the pool of educated population. A high literacy rate represents a large pool of educated workers capable of contributing to the tax base of the country by working in light industrial jobs.

Key Terms in this Chapter

Governance: Governance is the authority to make decisions that affect people in a transparent manner. It involves the act of making inclusive decisions in a transparent way. Governance is the establishment of policies, and monitoring for their proper implementation by the members of the governing body in an organization. Governance needs discipline, dedication, transparency, and accountability. Good governance is about the processes for making and implementing decisions. It’s not about making ‘correct’ decisions, but about the best possible process for making those decisions.

Vector Autoregressive: A VAR model applies when each variable in the system does not only depend on its own lags, but also the lags of other variables. It is a natural extension of the univariate autoregressive model to dynamic multivariate time series. The VAR model has proven to be especially useful for describing the dynamic behavior of economic and financial time series and for forecasting.

Impulse Response: Impulse response represents the effects of unit shocks in the variable of a system after some periods. Impulse response functions (IRFs) are used to evaluate the effectiveness of a policy change. An impulse response refers to the reaction of any dynamic system in response to some external change. The impulse response function of VAR analyzes dynamic effects of the system when the model received the impulse or shock.

Violence: This is a treatment which involves the use of force and which can cause damage and/or injury. When there is a conflict of interest, as in the case of denial of rights, those involved could resort to violence when every other measure has failed to achieve their targets. This approach is always crude and/or a last resort when dialogues, demonstrations, etc. have failed.

Ethnic Bias: State operates by adhering to a set of rules and rights and thereby ensuring transparency and accountability. It is expected that the State should take the interest of all the groups that make up the State to heart. However, if at any time, the policies of the government favor one group against the other, the attitude of the government is said to be biased against those discriminated. This is ethnic bias. This can result in civil strife and other social upheavals.

Co-Integration: It is expected that time series data are stationary at level forms, i.e. the variables are I(0). If some or all the variables in the regression are of I(1), then the usual statistical results or characteristics may not hold. In this case the regression is said to be spurious when the regressors are I(1) and not cointegrated. The non-stationary time series in Y t are cointegrated if there is a linear combination of them that is stationary. The intuition is that I(1) time series with a long-run equilibrium relationship cannot drift too far apart from the equilibrium because economic forces will act to restore the equilibrium relationship.

Political Economy: Political economy most commonly refers to interdisciplinary studies drawing upon economics, political science, law, history, sociology and other disciplines in explaining the crucial role of political factors in determining economic outcomes. Political economy is the study of the relationships between individuals and society, and more specifically, the relationships between citizens and states.

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