Military Expenditures, Income Inequality and Economic Growth Interlinkages: An Empirical Assessment for Developing Countries

Abstract

The precise objective of the research is to empirically analyze the interdependence between military expenditure, income inequality and economic growth in 51 developing nations. For this purpose, study is used aggregate and disaggregate data analysis of developing countries on the basis of democracy. To tackle the endogeneity between the variables, three-stage least squares (3SLS) econometric technique is used for the current analysis by using dataset spanning over 2000-2020. Data for the variables used is obtained from different sources including World Bank, World Governance Indicator, International Country Risk Guide and World Income Inequality Database. The 3SLS result for the military expenditure shows that higher level of military expenditure reduces the income inequality and economic growth. The result for income inequality shows that it impedes the economic growth and also reduces the military expenditure in developing countries. The results of the third model of economic growth shows that increase in economic growth will negatively affects the income inequality and military expenditure. In this study, the disaggregate analysis is done on the basis of democracy level by splitting the countries into two groups namely democratic countries and authoritarian countries. The results of the democratic countries are same with the results of combine data analysis,while in the case of authoritarian countries results are same with aggregate data analysis except the economic growth which has insignificant impact.