Analyzing the Long-Run and Short-Run Effect of Military Expenditure and Political Stability on Economic growth of Afghanistan

Shahzad Anwar, Faizan Ahmad

Analyzing the Long-Run and Short-Run Effect of Military Expenditure and Political Stability on Economic growth of Afghanistan

Shahzad Anwar, Faizan Ahmad

Volume 1 Issue 1 | Dec 2024

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Abstract

This study examines the impact of military expenditures (as a percentage of GDP), military imports, and political stability on Afghanistan's economic growth (GDP%) from 2001 to 2021. Using a Vector Error Correction Model (VECM), the analysis investigates short- and long-term relationships. The Augmented Dickey-Fuller (ADF) and Philips Peron test confirm stationarity at the first difference, while the Johansen cointegration test identifies a long-term equilibrium relationship among the variables. However, no short-term relationship is detected, indicating that changes in military expenditures, imports, and political stability do not immediately impact GDP growth. The findings emphasize the role of political stability in enhancing the long-term economic impact of military expenditures. By addressing a key research gap that Hassani (2020) highlighted, this study offers actionable insights for policymakers and development agencies working in post-conflict recovery and fragile state development. It recommends improving political stability and optimizing military spending to support sustainable economic growth in Afghanistan.
Keywords: Military Expenditure, Political Stability, Economic Growth, Short and Long Run Relationship