Investigating the Nexus Between Militarization and Inflation in Turkey
DOI:
https://doi.org/10.47743/saeb-2023-0020Keywords:
Bayer-Hanck Cointegration Test, inflation, militarization, Turkish economy.Abstract
The importance of military expenditure in terms of establishing national security constitutes the main excuse for public expenditures made by states in this field. Yet, a special importance should be attached to military expenditure in terms of ensuring the efficiency of the public sectors of developing countries and rational use of resources. In fact, there is no consensus about the effect of these types of expenditures on the economy in general or the trade-offs they cause. Therefore, their effects on major macroeconomic variables and efficiency in resource allocation, production, and distribution deserve to be comprehensively addressed. To this end, this study aims to investigate the long- term effect of militarization on inflation in Turkey. By incorporating the annual data from the period 1970 to 2020 and employing the combined approach to cointegration suggested by Bayer and Hanck (2013), the presence of long-term interplay between militarization and inflation can be analyzed. After detecting the presence of cointegration, the findings of the long run model reveal that inflation is spurred by military expenditure and arms imports besides the other determinants of inflation.
References
Aiyedogbon, J. O., Ohwofasa, B. O., & Ibeh, S. E. (2012). Does military expenditure spur inflation? Autoregressive distributed lag (ARDL) & causality analysis for Nigeria. European Journal of Business and Management, 4(20), 147-151.
Alici, A., & Ucal, M. S. (2015). Inflation targeting framework: Leading indicator variables of inflation in Turkey. Çukurova Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 14(1), 31-44.
Asilogullari, M. (2020). Türkiye’de savunma harcamalarının enflasyon üzerindeki etkisi (1960-2017). Savunma Bilimleri Dergisi, 19(1(37)), 125-157.
Azam, M. (2020). Does military spending stifle economic growth? The empirical evidence from non-OECD countries. Heliyon, 6(12), 1-10. http://dx.doi.org/10.1016/j.heliyon.2020.e05853
Banerjee, A., Dolado, J. J., & Mestre, R. (1998). Error-correction mechanism tests for co-integration in a single-equation framework. Journal of Time Series Analysis, 19(3), 267-283. http://dx.doi.org/10.1111/1467-9892.00091
Bayer, C., & Hanck, C. (2013). Combining non-cointegration tests. Journal of Time Series Analysis, 34(1), 83-95. http://dx.doi.org/10.1111/j.1467-9892.2012.00814.x
Bose, N., Haque, M. E., & Osborn, D. R. (2007). Public expenditure and economic growth: A disaggregated analysis for developing countries. Manchester School, 75(5), 533-556. http://dx.doi.org/10.1111/j.1467-9957.2007.01028.x
Boswijk, H. P. (1994). Testing for an unstable root in conditional and structural error correction models. Journal of Econometrics, 63(1), 37-60. http://dx.doi.org/10.1016/0304-4076(93)01560-9
Caldara, D., Conlisk, S., Iacoivello, M., & Penn, M. (2023). Do Geopolitical Risks Raise or Low Inflation? Preliminary Draft.
Calleo, D. P. (1981). Inflation and American power. Foreign Affairs, 59(4), 781-812. http://dx.doi.org/10.2307/20040822
Capra, J. R. (1981). The national defense budget and its economic effects. Federal Reserve Bank of New York Quarterly Review, 6(2), 21-31.
Chan, S., & Davis, D. R. (1991). Defense allocation, inflation and unemployment in South Korea and Taiwan: A Granger analysis. Korean Journal of Defense Analysis, 3(2), 239-257. http://dx.doi.org/10.1080/10163279109464264
Cizre-Sakallioglu, Ü., & Yeldan, E. (2000). Politics, society and financial liberalization: Turkey in the 1990s. Development and Change, 31(2), 481-508. http://dx.doi.org/10.1111/1467-7660.00163
Cuaresma, J. C., & Reitschuler, G. (2004). A non-linear defense-growth nexus? Evidence from the US economy. Defence and Peace Economics, 15(1), 71-82. http://dx.doi.org/10.1080/1024269042000164504
Deger, D., & Sen, S. (1995). Military expenditure and developing countries. In K. Hartley & T. Sandler (Eds.), Handbook of defense economics (pp. 275-307): Elsevier Publishing. http://dx.doi.org/10.1016/S1574-0013(05)80013-4
DeGrasse, R. W. (1983). Military expansion, economic decline: Impact of military spending on United States economic performance (1st ed. ed.): Routledge. http://dx.doi.org/10.4324/9781315495897
Domke, W., Eichenberg, R., & Kelleher, C. (1983). The illusion of choice: Defense and welfare in advanced industrial democracies, 1948-1978. The American Political Science Review, 77(1), 19-35. http://dx.doi.org/10.2307/1956009
Dritsakis, N. (2004). Defense spending and economic growth: An empirical investigation for Greece and Turkey. Journal of Policy Modeling, 26(2), 249-264. http://dx.doi.org/10.1016/j.jpolmod.2004.03.011
Dudzevičiüté, G., & Šimelyté, A. (2022). The impact of economic determinants on the defence burden in selected NATO countries. Viešoji Politika Ir Administravimas, 21(1), 9-21.
Dumas, L. J. (1977). Economic conversion, productive efficiency and social welfare. Peace Research Reviews, 4(8), 567-596.
Dunne, J. P., Nikolaidou, E., & Smith, R. P. (2002). Military spending, investment and economic growth in small industrializing economies. The South African Journal of Economics, 70(5), 789-790. http://dx.doi.org/10.1111/j.1813-6982.2002.tb00045.x
Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: Representation, estimation and testing. Econometrica, 55(2), 251-276. http://dx.doi.org/10.2307/1913236
Fordham, B. O. (2003). The political and economic sources of inflation in the American military budget. The Journal of Conflict Resolution, 47(5), 574-593. http://dx.doi.org/10.1177/0022002703257126
Gansler, J. S. (1980). The defense industry: MIT Press.
Georgiou, G., Kapopoulos, P., & Lazaretou, S. (1996). Modeling Greek–Turkish rivalry: An empirical investigation of defense spending dynamics. Journal of Peace Research, 33(2), 229-239. http://dx.doi.org/10.1177/0022343396033002008
Gi Baek, E. (1991). Defense spending and economic performance in the United States: Some structural VAR evidence. De Economía, 2(3), 251-264. http://dx.doi.org/10.1080/10430719108404696
Grier, K., & Tullock, G. (1989). An empirical analysis of cross-national economic growth, 1961-1980. Journal of Monetary Economics, 24(2), 259-276. http://dx.doi.org/10.1016/0304-3932(89)90006-8
Hamilton, J. D. (1977). The role of war in modern inflation. The Journal of Economic History, 37(1), 13-19. http://dx.doi.org/10.1017/S0022050700096686
Heo, U. (1998). Modeling the defense-growth relationship around the globe. The Journal of Conflict Resolution, 42(5), 637-657. http://dx.doi.org/10.1177/0022002798042005006
Hung-Pin, L., Wang, T., & Yang, C. (2016). Further causality evidence on arms race, inflation and economic growth. Economic Computation and Economic Cybernetics Studies and Research, 50(2), 123-137.
İpek, A. G. E. (2014). The impact of defense expenditures on selected macroeconomic variables: An ARDL bounds testing approach. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 14(3), 113-125. http://dx.doi.org/10.18037/ausbd.82377
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics & Control, 12(2-3), 231-254. http://dx.doi.org/10.1016/0165-1889(88)90041-3
Kara, A. H. (2018). Turkish experience with implicit inflation targeting. Central Bank Review. Central Bank of the Republic of Turkey, 8(1), 1-16.
Karakurt, B., Şahingöz, B., & Şenturk, S. H. (2018). Türkiye’deki savunma harcamalarının enflasyon üzerindeki etkisi: Yapısal kırılmalı eşbütünleşme analizi. . Maliye Dergisi, 175(2), 154-170.
Kaufman, R. F. (1972). The Pentagon stokes inflation. Nation (New York, N.Y.), 214(18), 555-558.
Kinsella, D. (1990). Defense spending and economic performance in the United States: A casual analysis. De Economía, 1(4), 295-309. http://dx.doi.org/10.1080/10430719008404669
Kollias, C. G., & Makrydakis, S. (1997). Defense spending and growth in Turkey 1954–1993: A causal analysis. Defence and Peace Economics, 8(2), 189-204. http://dx.doi.org/10.1080/10430719708404875
Lin, H. P. (2012). Does defense spending surprise long-run inflation, economic growth and welfare? Economic Bulletin, 32(1), 1020-1031.
Looney, R. E. (1989). Impact of arms production on income distribution and growth in the third world. Economic Development and Cultural Change, 38(1), 145-153. http://dx.doi.org/10.1086/451780
Maki, D. (2012). Tests for cointegration allowing for an unknown number of breaks. Economic Modelling, 29(5), 2011-2015. http://dx.doi.org/10.1016/j.econmod.2012.04.022
Melman, S. (1970). Pentagon capitalism: The political economy of war: McGraw-Hill.
Melman, S. (1978). Inflation and unemployment as products of war economy: The trade union stake in economic conversion and industrial reconstruction. Bulletin of Peace Proposals, 9(4), 359-374. http://dx.doi.org/10.1177/096701067800900413
Melman, S. (1986). Limits of military power: Economic and other. International Security, 11(1), 72-87. http://dx.doi.org/10.2307/2538876
Musgrave, R. A., & Musgrave, P. B. (1980). Public finance in theory and practice (5th ed. ed.): McGraw-Hill.
Nourzad, F. (1987). A reexamination of the effect of rapid military spending on inflation. Quarterly Journal of Business and Economics, 26(3), 57-66.
Olaniyi, O. (1993). Nigeria’s national defense and economic development: An impact analysis. Scandinavian Journal of Development Alternatives, 12(2 & 3), 241-254.
Özsoy, O. (2008). Defense spending and the macroeconomy: The case of Turkey. Defence and Peace Economics, 19(3), 195-208. http://dx.doi.org/10.1080/10242690801972139
Özsoy, O., & Ipek, E. (2010). The relationship between defense spending and macroeconomic variables. International Journal of Economics and Finance Studies, 2(1), 103-111.
Payne, J. E. (1990). Granger causality between inflation and defense spending: An empirical note. Kentucky Journal of Economics and Business, 10(2), 38-41.
Payne, J. E., & Ross, K. L. (1992). Defense spending and the macroeconomy. De Economía, 3(2), 161-168. http://dx.doi.org/10.1080/10430719208404724
Phillips, P., & Hansen, B. (1990). Statistical inference in instrumental variables regression with I (1). The Review of Economic Studies, 57(1), 99-125. http://dx.doi.org/10.2307/2297545
Reich, M. (1972). Does the U.S. Economy Require Military Spending? The American Economic Review, 69(1/2), 296-303.
Sahu, A. P., Payne, J. E., & Kleiman, R. T. (1995). Defense, nondefense expenditures, and inflation: An empirical analysis. Quarterly Journal of Business and Economics, 34(1), 14-24.
Sandler, T., & Hartley, K. (1990). The economics of defense spending: An international survey (1st ed. ed.): Routledge.
Schultze, C. L. (1981). Economic effects of the defense budget. Brookings Bulletin (Washington, D.C.), 18(2), 1-5.
Smith, R. P. (1977). Military expenditure and capitalism. Cambridge Journal of Economics, 1(1), 61-76. http://dx.doi.org/10.1093/oxfordjournals.cje.a035351
Sohag, K., Taşkın, F. D., & Malik, M. N. (2019). Green economic growth, cleaner energy and militarization: Evidence from Turkey. Resources Policy, 63, 1-9. http://dx.doi.org/10.1016/j.resourpol.2019.101407
Starr, H., Hoole, F. W., Hart, J. A., & Freeman, J. R. (1984). The relationship between defense spending and inflation. The Journal of Conflict Resolution, 28(1), 103-122. http://dx.doi.org/10.1177/0022002784028001006
Stein, A. A. (1980). The nation at war (1st ed. ed.): The Johns Hopkins University Press.
Stekler, H. O. (1979). The relationship between inflation and defense expenditures. Institute for Defense Analyses Program Analysis Division Paper, P-1457. http://dx.doi.org/10.21236/ADA082195
Stock, J., & Watson, M. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61(4), 783-820. http://dx.doi.org/10.2307/2951763
Stockholm International Peace and Research Institute. (2021). SIPRI Yearbook 2021: Armaments, Disarmament and International Security, SIPRI. Retrieved from https://www.sipri.org/sites/default/files/2021-06/sipri_yb21_summary_en_v2_0.pdf
Terhal, P. (2001). Guns or grain: Macro-economic costs of Indian defense, 1960-1970. Economic and Political Weekly, 16(49), 1995-2004.
The Central Bank of Turkey. (2002). The impact of globalization on the Turkish economy (1st ed.). Retrieved from https://www.tcmb.gov.tr/wps/wcm/connect/16555e2a-dfcb-4e4b-9ef9-ec2797f3f2d8/global.pdf?CACHEID=ROOTWORKSPACE-16555e2a-dfcb-4e4b-9ef9-ec2797f3f2d8-m3fBaj8&MOD=AJPERES
Tzeng, S., Lai, C., & Huang, C. (2008). Does military expenditure matter for inflation and economic growth? Defence and Peace Economics, 19(6), 471-478. http://dx.doi.org/10.1080/14775080701606184
Vitaliano, D. F. (1984). Defense spending and inflation: An empirical analysis. The Quarterly Review of Economics and Business, 24(1), 22-32.
Xu, Y., Su, C. W., & Tao, R. (2018). Is defense spending inflationary? Time–frequency evidence from China. Defence and Peace Economics, 31(3), 361-375. http://dx.doi.org/10.1080/10242694.2018.1457197
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Olcay Çolak, Sevilay Ece Gümüş Özuyar, Duran Bülbül
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.
This work is licenced under a 
