Defence expenditure and economic growth: A case study of Sri Lanka using causality analysis

Saroja Selvanathan and Eliyathamby Selvanathan

International Journal of Development and Conflict, 2014, vol. 4, issue 2, 69-76

Abstract: Many countries allocate a significant amount of their income to defence related expenses, especially when involved in internal or external military conflicts. Political stability in a country is a key ingredient for attracting foreign and local investors and hence for economic growth. This paper analyses the relationship between defence expenditure and economic growth in Sri Lanka using data for the period 1975–2013 applying the latest developments in time series analysis. Interestingly, the results show that, in Sri Lanka, defence expenditure causes economic growth. There is no causal effect from economic growth to defence expenditure as generally expected. This result is unique as Sri Lanka went through 30 years of civil war which ended in 2009, which resulted in the loss of tens of thousands of civilian lives and cost several billions of dollars in annual defence expenditure throughout the war years.

Date: 2014
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