The relationship between defense spending and inflation : an emprical analysis for Turkey

Abstract

This study estimates the relationship between defense expenditures and inflation in Turkey over the period of 1950-2001 by employing a Johansen Cointegration analysis and Granger Causality test. The different views that appear in the literature on this relationship are identified and it is concluded that there is no agreement as to the exact nature of the relationship between defense spending and inflation. The results of this study indicate that defense expenditures and inflation have a significant effect on each other both in the long and in the short run. In other words, there is Granger feedback (X↔Y) between defense spending and inflation for Turkey.