Military Expenditures and Economic Growth: A Causal and Comparative Analysis Between the USA and China

This study compares the relationship between military spending and GDP growth in China and the United States from 1989 to 2018. Using the Toda-Yamamoto Granger causality test, impulse response functions, and variance decomposition, it examines whether military expenditures respond to economic conditions or to strategic decisions. Results show that in China, military spending largely follows GDP growth, indicating a reactive economic pattern. In contrast, US military expenditures are only partly influenced by GDP and are mainly shaped by strategic, political, and geopolitical factors. The findings point to the structural role of the US military-industrial complex in sustaining capitalist interests and global dominance. The study contributes to understanding the economic and strategic dynamics of the two leading world powers. JEL Classification: H56, O57, O47, N10, B5