Defense spending and economic growth: an empirical investigation for Greece and Turkey

This paper investigates the relationship between the defense spending and economic growth for two adjacent countries, members of NATO, namely Greece and Turkey. Greece, a member-country of European Union, spends more money than other member-countries of EU relatively to its GDP and Turkey has already started accession negotiations with EU in 2004. In the empirical analysis of this paper Johansen cointegration test is applied, using vector error correction model, in order to examine the relationship between defense spending and economic growth. This paper proves that there is no cointegrated relationship between the two variables, while the Granger causality results indicate a unidirectional causal relationship between economic growth and defense spending for both countries. Moreover they indicate that there is a bilateral causal relationship between defenses spending of the two countries. (C) 2004 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.