Trade-Off Between Defense and Development: A Time Series Study in India

Trade-Off Between Defense and Development: A Time Series Study in India

Maniklal Adhikary (Burdwan University, India) and Anindya Bhattacharya (Netaji Mahavidyalaya Arambagh, India)
DOI: 10.4018/978-1-5225-4778-5.ch023
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This chapter looks into the existence and the nature of relationship between defense expenditure and GDP and development expenditure for Indian economy for last 30 years (1987-2016). Using Spline function regression technique and single equation regression approach, it concludes that defense expenditure is not significantly contributing in explanation for changes in GDP growth and development expenditure and its components. Further, defense expenditure shows significant structural breaks in the year 2000, which might be attributed to exorbitant hike in the defense expenditure data during Kargil War in 1998. Considering all these rises in defense expenditure, it is to an extent convenient to find the result that this has neither affected economic growth nor development expenditures in a significant manner.
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Defence study in India is still in a budding phase. From economic perspective defence study is again fewer. The relationship between military expenditure and economic growth has been explored empirically for other countries and that has enriched the literature of defence economics. The study of defence economics started with the seminal research of Benoit (1973, 1978). This research stems round the hypothesis that military spending is directly related with economic growth and development.

Key Terms in this Chapter

Unit Root: A unit root (also called a unit root process) is a stochastic trend in a time series, sometimes called a “random walk with drift.” If a time series has a unit root, it shows a systematic pattern that is unpredictable. Unit-root problem is concerned with the existence of characteristic roots of a time series model on the unit circle.

Spline Function: Spline functions are defined as piecewise polynomials of degree n. Regression of such function is an application of linear regression technique in the presence of “knot” (or, structural break) using a regime dummy variable.

Defense Expenditure: Defense expenditure means all current and capital expenditure on the armed forces, including peace keeping forces of defense ministries and other government agencies engaged in defense projects, paramilitary forces when judged to be trained, equipped and available for military operations.

Structural Break: A structural break is an abrupt shift in a time series data. This change could involve a change in mean or a change in the other parameters of the process that produce the series.

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