The military expenditure-external debt nexus: new evidence from a panel of Middle Eastern countries

This paper examines the impact of military expenditure and income on external debt for a panel of six Middle Eastern countries; namely, Oman, Syria, Yemen, Bahrain, Iran, and Jordan, over the period 1988 to 2002. Using Pedroni's (2004) test for panel cointegration, we find that there is a long-run relationship between external debt, military expenditure and income. The estimated long-run elasticities suggest that an increase in military expenditure contributes to a rise in external debt, while an increase in income helps the Middle Eastern countries to pay off their external debt.