ECONOMIC GROWTH IN RELATION TO DEFENCE EXPENDITURE, EXTERNAL DEBT AND FOREIGN AID (A CASE STUDY OF PAKISTAN)
ECONOMIC GROWTH IN RELATION TO DEFENCE EXPENDITURE, EXTERNAL DEBT AND FOREIGN AID (A CASE STUDY OF PAKISTAN)

Summary/Abstract: This study explores the relationship between Defence expenditure (DE), external debt (ED), economic growth (GDP), foreign Aid (AID) and Development (DEV) in Pakistan from 1960 to 2016. World Bank data base has been used for standardisation and acceptability. This research is a combination of multivariate cointegration and Granger causality analysis for DE, ED and GDP. However for trend analysis two additional variables i.e. AID and DEV have been added to the model, the results have been matched. Johansen and Juselius’ multivariate cointegration analysis and trend analysis indicate the presence of a long-term relationship between the DE, ED and GDP. All variables have strong positive relationship. Variance decomposition analysis suggests that the GDP is positively affected by DE and ED, however trend analysis indicates strong but negative relationship of ED with DE and GDP both. Other two variables i.e. AID and DEV do not have relationship with DE, ED and GDP, however trend analysis indicates a weak positive and long term relationship between the two. The trend analysis suggests that after 2030 ED is likely to be more than GDP and DE, therefore policy makers may be aware of this eventuality and look for a long term economic policy and adoption of PPBES (Planning, Programming, Budgeting and Evaluation System) for long term policy planning. The system may be studied in detail to guard against occurrence of any such eventuality. Moreover due diligence/ caution be exercised while negotiating any long term external loans, as it has a direct bearing the economic outlook by 2030.

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