Does military spending increase public debt in G-5 Sahel states? evidence from a panel data analysis

Résumé

This paper analyzes the public debt effects of military spending using data from G-5 Sahel states over the period 1990-2020. We first test for the cross-sectional dependence among units in order to adopt an appropriate panel data tool. We then employ the panel granger causality approaches and compute the impulse response functions (IRF) and forecast error variance decompositions (FEVD) from our empirical panel vector autoregressive model (PVAR). The results indicate that granger-causality firmly runs from military spending to public debt. Moreover, findings from IRF show that military spending positively affects public debt in the short run whereas its long run effect on public debt is negatively negligible. The results from FEVD also reveal that military spending explains by about 1.62% the overall variation in public debt. A policy implication derived from our findings is that G-5 Sahel states can reduce their debt burden by optimally allocating ressources to military sector, and promoting economic growth and globalization.