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Quality & Quantity
Published in: Quality & Quantity 3/2016

28-04-2015

Linkages between defense spending and income inequality in Iran

Authors: Muhammad Shahbaz, Reza Sherafatian-Jahromi, Muhammad Nasir Malik, Muhammad Shahbaz Shabbir, Farooq Ahmed Jam

Published in: Quality & Quantity | Issue 3/2016

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Abstract

This paper contributes in economic literature by investigating the impact of defense spending on income inequality in case of Iran using time series data over the period of 1971–2011. For this purpose, we have applied the ARDL bounds testing approach to cointegration for long run relationship in the presence of structural breaks arising in the series. The stationarity properties of the variables are tested using structural break unit root tests. The causal relationship between defense spending and income inequality is examined by employing the VECM Granger causality approach. Our findings validate the long run relationship between the series. The results indicate that defense spending improves income distribution in Iran. An inverted-U shaped relationship exists between defense spending and income inequality while economic growth reduces income inequality. The causality analysis reveals that defense spending Granger causes income inequality and feedback effect exists between income inequality and economic growth.
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Footnotes
1
Chaitanya (2008) has explained Opportunity Cost Burden Effect Model with help of diagram.
 
2
The results of all studies regarding unit root properties of the variables are biased. The traditional unit root tests do not have information regarding structural break stemming in the series.
 
3
See Tiwari and Shahbaz (2012); Shahbaz et al. (2013).
 
4
Results are available upon request from authors.
 
5
We put dummy variable to capture the impact of structural breaks indicated by Zivot and Andrews (1992) unit root test.
 
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Metadata
Title
Linkages between defense spending and income inequality in Iran
Authors
Muhammad Shahbaz
Reza Sherafatian-Jahromi
Muhammad Nasir Malik
Muhammad Shahbaz Shabbir
Farooq Ahmed Jam
Publication date
28-04-2015
Publisher
Springer Netherlands
Published in
Quality & Quantity / Issue 3/2016
Print ISSN: 0033-5177
Electronic ISSN: 1573-7845
DOI
https://doi.org/10.1007/s11135-015-0207-z

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