DEFENSE SPENDING-ECONOMIC GROWTH NEXUS: A CASE STUDY OF PAKISTAN

Defense spending of Pakistan remains high in order to sustain a credible deterrence, significant geopolitical position in Afghan wars and combat terrorism. The present study analyzes the defense spending in light of perceived and real threats to Pakistan's security and its linkages with economic growth. By developing a theoretical framework to explore the different dimensions of relationship, the study empirically investigates the relationship between defense spending and economic growth. Econo- metric techniques such as Johansen Cointegration and Granger Causality tests have been applied to obtain empirical results by using a time series data from 1980 to 2010. The results indicate that there exists a long-run relationship between defense spending and economic growth whereas economic growth granger causes defense spending.