The relationship between defense expenditures and external borrowing: Turkey case

The state has important duties such as maintaining the domestic security in the country and repelling potential attacks from foreign countries. The state makes defence expenditures to fulfil these duties. The level of defence expenditures varies from country to country based on various factors. Turkey tends to continuously increase its defense expenditures due to a number of reasons including high regional risks as a result of its geographical location, fight against terrorism, the threat of attack from other countries. In addition to tax revenues its also used external borrowing to finance these expenditures. External borrowing plays an important role in financing public expenditures, especially for developing countries. Defense spending has always been an important strategic public expenditure for Turkey. This study aims at determining the relationship between Turkey's defense expenditures and foreign borrowing. The data for this study was obtained from the World Bank between 1970 and 2018 and analyzed using the Toda-Yamamoto causality test. The test for causality confirmed a unidirectional flow from defense expenditures to foreign borrowing at the 10% level of significance. Furthermore, Perron's (1989) structural break test and Narayan-Popp (2010) unit root test were applied for the first time to this relationship and a contribution to the literature is made accordingly.