Military spending and economic growth in South Africa - A causal analysis

A number of studies consider the relation between military spending and eco nomic growth using Granger causality techniques. Some studies have used sam ples of groups of countries, finding no consistent results. Other studies h ave focused on individual countries, which permits greater knowledge of the structure of the economy and the budget. This study adds to the literature by providing an analysis of South African data, a particularly interesting case study given the considerable changes that have taken place in recent years. It is a developing country with a developed military sector and a re latively high military burden. In addition to analyzing South African data using standard "pre-cointegration'' Granger causality techniques, this stud y employs modem vector autoregressive methodology that uses cointegration. This is an important improvement in the econometric analysis and indicates a significant negative impact of military spending on growth in South Afric a that is not apparent when using the standard techniques.