The Relationship Between Defense Expenditures, Budget Deficit and External Debt After the Financial Liberalization Period: The Case of E7 Countries

Torusdağ M.

Türkiye Ekonomi Kurumu, 7 th International Conference on Economics, ICE-TEA2021, Ankara, Turkey, 9 - 11 April 2021, pp.300-312

  • Publication Type: Conference Paper / Full Text
  • City: Ankara
  • Country: Turkey
  • Page Numbers: pp.300-312
  • Van Yüzüncü Yıl University Affiliated: Yes


In the 1980s, with the effect of globalization, in some developing countries, with the implementation of financial liberalization policies, it is seen that there was a tendency to external financing resources. Financial liberalization is seen as a financing tool for external debt. The burden of countries' defense expenditures on their budgets and financing of defense expenditures are among the problems of developing countries. A budget deficit occurs as a result of insufficient financing of defense expenditures with tax revenues. In case budget deficits cannot be financed with domestic resources, external borrowing need arises. While the relationship between defense expenditures and many macroeconomic variables is discussed in the literature, its relation with foreign debt and budget deficit remains at a restricted level. In this study, the relationship between defense expenditures, budget deficit and external debt for E7 countries is examined for the period 1980-2019, also known as the post-financial liberalization period in the literature. For the analysis of study developed by Taylor ve Sarno (1998) MADF panel unit root tests and Gengenbach et al. (2016) GUW cointegration test were applied and for the causality relationship between variables, panel causality test developed by Emirmahmutoğlu and Köse (2011) was applied. As a result of the causality analysis findings of the study, it was concluded that there is a one-way causality relationship from budget deficit to foreign borrowing and defense expenditures to foreign borrowing for the panel in general in E7 countries.