The Impact of Defence Expenditure on Economic Growth in Sri Lanka: A Time Series Investigation

Abstract

This study examines the impact of defence spending on economic growth in Sri Lanka, a country that has experienced prolonged ethnic conflict and elevated security related expenditures. Using annual time series data from 1970 to 2022, the analysis employs the ARDL technique to investigate the co-integration relationships between defence expenditure, economic growth, economic freedom index, external debt stocks, Population growth, Trade openness, and Capital formation. The results reveal that defence expenditure has a statistically significant negative impact on Economic growth in the long run, while Population growth, Capital formation, and Economic freedom index have a positive effect. Furthermore, the Granger causality test suggests a one-way causal relationship between Economic growth and Defence expenditure. The study concludes that defence expenditure is a significant contributor to Sri Lanka's economic backwardness and recommends that policymakers focus on Defence expenditure and financial management to promote economic growth. The findings of this study contribute to the understanding of the complex relationship between Defence expenditure and Economic growth in developing countries like Sri Lanka.