Defense expenditure and economic growth: empirical study on case of Turkey

Abstract

This thesis set out to find the relationship, if any, between defense spending and economic growth for Turkey, and to discuss the policy implications of the empirical results. Since Turkey has one of the largest defense budgets within the Middle East and also NATO, this question has important implications for Turkey's future economic well-being and political stability. Taking into account the difficulties present in previous military expenditure studies, an econometric model was specified and empirically tested using Turkish data for 1969-2004. Results suggested that there is a negative linkage between military expenditure and economic growth. The second part of the empirical study tested the defense-welfare relationship for Turkey using expenditures on health and education as welfare proxies. The empirical findings suggested that there are tradeoffs between military expenditures and welfare spending. However, there seems to be a positive relationship between military expenditures and education. The Turkish Republic's defense policy has been continually guided by Ataturk's proverb of "peace at home, peace in the world." However, sustaining a peaceful environment has required a high level of military expenditures. What makes Turkey's military expenditures relatively high? Is it possible to draw inferences that high military expenditures are a requirement for Turkey? To answer these questions, factors that are major reasons for high military expenditures are also discussed in this thesis. These include strategic factors, conflicts with PKK terrorism, disputes with Greece, the military modernization program, and the economic environment of Turkey.