DEFENSE SPENDING - ECONOMIC GROWTH NEXUS IN SELECTED OIC COUNTRIES: ALONG-RUN CAUSALITY ANALYSIS

This paper investigates the long-run Granger causality between defense spending and economic growth for 20 selected Organization of Islamic Countries (OIC) by employing the Error- Correction Model (ECM) framework using annual data for the period 1960 to 2005. Defense spending (milex) is measured using the ratio of defense spending to gross domestic product (GDP); while economic growth {rgdpc) is proxy by the real GDP per capita. The results of our study indicated that one-way long-run Granger causality was found running from economic growth to defense spending for Burkina Faso, Indonesia, Kuwait, Saudi Arabia, Sudan, Togo and Turkey. On the other hand, one-way long-run Granger causal effect running from defense spending to economic growth was found for Iran, Mauritania, and Nigeria. However, for the rest of the OIC countries, the results suggest thated there is no relationship between defense spending and economic growth.