Government Expenditures, Military Spending and Economic Growth: Causality Evidence from Egypt, Israel and Syria

Abstract

This study uses multivariate cointegration and variance decomposition techniques to investigate the causal relationship between government expenditures and economic growth for Egypt, Israel and Syria, for the past three decades. When testing for causality within a bivariate system of total government spending and economic growth, we find bi-directional causality from government spending to economic growth with a negative long-term relationship between the two variables. However, when testing for causality within a trivariate system ¬– the share of government civilian expenditures in GDP, military burden and economic growth – we find that the military burden negatively affects economic growth for all the countries, and that civilian government expenditures cause positive economic growth in Israel and Egypt.Middle East; economic growth; government expenditure; military burden; Granger causality and error correction models