Effect of Military Spending on Unemployment in Selected Developing Countries Using Panel Mean Group Approach

This paper tries to investigate the effect of military spending on unemployment in selected developing countries during the period of 1995-2014. For this purpose, first, a model has been designed with the presence of fundamental variables affecting unemployment rate alongside the share of military spending from GDP variable. Then, using the panel co-integration tests the long-run equilibrium relationship between the model variables has been confirmed. Finally, the Panel Mean Group (PMG) approach has been used to measure the long-term and short-term relationships. The findings indicate the positive impact of the share of military spending from GDP on the unemployment rate and confirm the Abrams curve in the military sector. By contrast, the effect of the share of non-military spending from GDP on the unemployment rate is negative and rejects the Abrams curve in the civilian sector. Based on the other results, economic growth and inflation have negative effects on unemployment rate, which confirm the Okan's law and the Philips curve in the selected economies, respectively