Relationship between defense expenditures,unemployment, exchange rate, and interest rate:the case of turkey

The aim of this study is to examine the impact of defense expenditures on unemployment, interest rates, and exchange rates. Its primary objective is to understand the effects of defense expenditures on economic variables and emphasize their significance for policymakers. In this context, panel data analysis was employed. The findings of the research indicate that defense expenditures have a significant impact on unemployment. It was found that an increase in defense spending particularly stimulates employment in the defense industry and related sectors, thereby reducing the unemployment rate. Additionally, the study explored the effect of defense expenditures on interest rates, revealing mixed results. In some cases, an increase in defense spending led to higher interest rates, while in others, the effect was weak or uncertain. Regarding exchange rates, defense expenditures generally exerted a limited impact, although an increase in defense spending could indirectly affect the country's trade balance and consequently influence exchange rates. The study conducted ADF unit root tests, Bayern-Hanck (2012) cointegration tests, Fourier Todo Yamamoto (2016), and Hacker-Hatemi (2006) causality tests for the period 1990-2022 in Turkey. Based on the analysis findings from Fourier Todo Yamamoto (2016) and Hacker-Hatemi (2006) causality tests, it was concluded that there exist bidirectional causality relationships in Turkey between the unemployment rate and interest rates, unemployment and exchange rates, unemployment and defense expenditures, defense expenditures and exchange rates, exchange rates and interest rates, as well as defense expenditures and interest rates.