Assessing the impact of military expenditures on economic growth: A case study of Azerbaijan

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Analyzing the connection between military expenditure and economic growth is interesting due to its policy implications, particularly in geopolitically strategic regions. In the case of Azerbaijan, where defense spending accounts for a significant share of the national budget, this relationship is especially relevant. The present study explores the long-term equilibrium between military expenditure, expressed as a percentage of GDP, over a three-decade period marked by consistent economic growth and substantial defense investments. To investigate this relationship, the study applies the Johansen cointegration method to check for a stable long-term relationship. It employs the Granger causality test to determine the causal direction between the variables. The findings show cointegrating relationships, indicating a long-term equilibrium between military expenditure and economic growth. Furthermore, the Granger causality analysis indicates a bidirectional causal link, implying that changes in military expenditure influence GDP per capita growth and vice versa. Specifically, the results show that military expenditure Granger causes GDP per capita at a lag of 3 (p-value = 0.012). Similarly, GDP per capita Granger causes military expenditure at the same lag (p-value = 0.0001). The findings reveal the dual impact of military spending on economic development, providing insights for Azerbaijani policymakers to balance defense needs with economic growth.

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    • Figure 1. GDP per capita and military expenditure in Azerbaijan: 1994–2022
    • Figure 2. Logarithmic time series profile of variables
    • Table 1. Brief overview of relationships between military expenditure and economic growth
    • Table 2. Overview of data analysis
    • Table 3. ADF unit root tests
    • Table 4. VAR lag order selection
    • Table 5. VAR residual tests
    • Table 6. Cointegration rank test
    • Table 7. Toda-Yamamoto Granger causality test results
    • Conceptualization
      Ramil Hasanov, Zeynab Giyasova, Mustafa Kemal Oktem, Vusal Guliyev, Rashad Salahov
    • Data curation
      Ramil Hasanov
    • Formal Analysis
      Ramil Hasanov, Zeynab Giyasova, Mustafa Kemal Oktem, Vusal Guliyev, Rashad Salahov
    • Investigation
      Ramil Hasanov, Zeynab Giyasova, Mustafa Kemal Oktem, Vusal Guliyev
    • Methodology
      Ramil Hasanov, Mustafa Kemal Oktem, Rashad Salahov
    • Resources
      Ramil Hasanov, Zeynab Giyasova
    • Software
      Ramil Hasanov, Zeynab Giyasova
    • Supervision
      Ramil Hasanov, Mustafa Kemal Oktem, Vusal Guliyev
    • Writing – original draft
      Ramil Hasanov, Zeynab Giyasova
    • Writing – review & editing
      Ramil Hasanov, Zeynab Giyasova, Mustafa Kemal Oktem, Vusal Guliyev, Rashad Salahov
    • Funding acquisition
      Zeynab Giyasova
    • Validation
      Zeynab Giyasova, Mustafa Kemal Oktem, Vusal Guliyev, Rashad Salahov
    • Visualization
      Rashad Salahov
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Problems and Perspectives in Management