Is Military Expenditure Still Important for Economic Growth? Case for the Bucharest Nine (B-9) Countries

Theoretical background: The economic growth (EG) effects of military expenditure (MEX) are of particular interest in the defense economics literature. Based on the theoretical background, MEX has a two-sided effect on economic growth. An increase in MEX stimulates aggregate demand, which increases economic growth, whereas increasing MEX may crowd out investment and impede economic growth. The empirical literature has no consensus about the relationship between MEX and economic growth. Purpose of the article: The current paper seeks to investigate the impact of MEX on EG for a panel sample of Bucharest Nine (B-9) countries, including Bulgaria, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia, using annual data over the period 1995-2022. Research methods: As a second-generation panel estimation technique, the augmented mean group (AMG) estimator is employed to find out the relationship between MEX and economic growth. Main findings: The AMG estimator results indicate that MEX has a positive effect on economic growth. Furthermore, gross fixed capital formation and exports of goods and services contribute to economic growth. The empirical results vary country-specific. For instance, MEX has a significantly positive impact on EG in Estonia, Hungary, Latvia, and Romania. In contrast, it has a negative effect on EG in Czechia and Slovakia. Moreover, it has an insignificantly positive impact in Bulgaria and Poland and an insignificantly negative effect in Lithuania.