The effect of peace and defense expenditures on foreign borrowing: An empirical practice on selected countries

Peace and defense expenditures are considered as global public goods due to the lack of competition and exclusion in their consumption. Since the benefits and harms of these goods affect the nations and even the next generations, they are important for all of the countries in the world. Therefore, determining the finance resources of peace and defense expenditures is a very important issue. Thus, one of the finance resources of peace and defense expenditures is foreign borrowing. For that reason, identifying whether there is a relationship between peace and defense expenditures and foreign borrowing or not is important for decision-makers. The causality between peace level, economic growth and foreign borrowing in 4 Mid-Western countries (Egypt, Iran, Jordan and Lebanon) and Turkey in 2007-2017 period was investigated in this thesis. In order to determine the stability of variables, first of all, panel root tests (Maddala and Wu (1999), panel root test and Im, Peseran and Shin (2003) unit root test) and then panel causality tests (Dumitrescu and Hurlin (2012), panel causality test and Kónya (2006) and Panel Bootstrap causality test) were conducted. As a result of the study a significant and positive relationship was determined between defense expenditures and foreign borrowing in Jordan and Lebanon. However, no significant relationship could not be determined in other countries. That beign said, a significant and negative causality was determined in Egypt and Turkey between peace level and foreign borrowing. No significant relationship could be determined in other countries.