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Social Indicators Research

Erschienen in:

02.03.2016

Dynamics of Military Expenditure and Income Inequality in Pakistan

verfasst von: Syed Ali Raza, Muhammad Shahbaz, Sudharshan Reddy Paramati

Erschienen in: Social Indicators Research | Ausgabe 3/2017

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Abstract

This study investigates the impact of military expenditures on income inequality in Pakistan using data over the period of 1972–2012. For this purpose, we applied the ARDL bounds testing cointegration approach which confirmed the presence of long-run equilibrium relationship between military expenditure and income inequality. Furthermore, empirical analysis indicates that military spending has a positive impact on income inequality. The analysis of Granger causality, Toda–Yamamoto Modified Wald test and variance decomposition approaches confirm the presence of unidirectional causality running from military expenditure to income inequality. The findings of our study suggest that higher military expenditure leads to higher income inequality in Pakistan. Therefore, we advise the policy makers to focus more on the policies which can increase the economic activities in the country and eventually reduce income inequality.

Vorheriger Artikel The Income Inequality Hypothesis Revisited: Assessing the Hypothesis Using Four Methodological Approaches

Nächster Artikel Measuring Multidimensional Inequality in the OECD Member Countries with a Distribution-Sensitive Better Life Index

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We use military expenditure and defence expenditure interchangeably throughout the paper.

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Income inequality is subjective phenomenon (Gori-Maia 2013; Oshio and Urakawa 2014).

The existing literature on the relationship between military expenditure and income inequality in Pakistan is very limited. There is only one study (Malik and Zaman 2013) which examined the relationship between these two variables but our study is significantly different from this study in terms of approach and investigation.

These countries were Pakistan, Bangladesh, India and Sri Lanka.

Azam et al. (2015) examined the relationship between military expenditures and unemployment noted that military spending are accompanied with an increase in employment.

Jamal (2006) generated income inequality data over the period of 1973–2003. We extrapolated data for the rest of period following his formula.

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See, Phillips and Perron (1988).

Pesaran and Shin (1999), Raza et al. (2015) and Shahbaz et al. (2015).

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The ARDL model itself is a robust model for small sample data (Haug 2002). However, to cross check the issue of small sample corrections, we estimated Johansen (1991, 1995) multivariate cointegration test and multiplied the Johansen’s trace statistics with the scale factor (T − pk)/T, where T is the number of observations, p is the number of variables and k is the lag order of the underlying VAR model in levels. The detailed discussion on this procedure can be found in Reinsel and Ahn (1992) and Reimers (1992). The critical values are taken from MacKinnon et al. (1999), and are also valid for the small sample correction. The results, after correcting for the small sample bias issue, show that still there is a long-run relationship among the variables. Therefore, our results, based on ARDL bound testing approach and Johansen cointegration (trace) test, suggest that there is a significant long-run equilibrium relationship among the variables.

Table 4 represents the results of lag length order of all variables. The results of Schwarz Bayesian Criterion indicate that the variables of income inequality and military expenditures should be included in the model with lag 1 while gross domestic product and per capita income should be included in the model with lag 2.

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Titel: Dynamics of Military Expenditure and Income Inequality in Pakistan
verfasst von: Syed Ali Raza
Muhammad Shahbaz
Sudharshan Reddy Paramati
Publikationsdatum: 02.03.2016
Verlag: Springer Netherlands
Erschienen in: Social Indicators Research / Ausgabe 3/2017
Print ISSN: 0303-8300
Elektronische ISSN: 1573-0921
DOI: https://doi.org/10.1007/s11205-016-1284-7

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