The relationship between military expenditures, economic growth, and foreign direct investments: The case of Turkey

Military expenditures play a critical role in ensuring a country's security, while also generating various effects on economic growth and foreign direct investment (FDI) inflows. As Aristotle stated in Politics, the success of a state depends not only on its wealth but also on how that wealth is managed. In this context, understanding the relationship between military spending, economic growth, and FDI is of vital importance for modern states aiming to allocate their resources effectively. This study aims to analyze the relationship between military expenditures, economic growth, and foreign direct investment in Turkey. Using data from 1970 to 2022, the study comprehensively examines the impact of military spending on economic growth and FDI. First, the stationarity of the time series is tested using Augmented Dickey-Fuller (ADF), Phillips-Perron (PP), and Fourier ADF unit root tests. According to the traditional ARDL test results, no statistically significant long-run relationship was found between economic growth, military expenditures, and FDI in Turkey. However, when applying the FARDL model, which accounts for structural breaks, a long-term cointegration relationship among the variables was identified. The causality analyses reveal no causality between military spending and economic growth, which supports the neutrality hypothesis. On the other hand, a causal relationship was found between military expenditures and FDI, with strong econometric evidence indicating causality running from FDI to military expenditures. This study highlights the effects of military spending on investor perceptions and economic decision-making in Turkey and provides important policy implications. In doing so, it offers an original contribution by addressing a gap in the literature.