The Nexus Between Military Expenditure and Unemployment: Panel Bootstrap Causality Approach for Central and Eastern Europe

The effects of militarization on different macroeconomic indicators have long traditional debate in the terrain of defense economics. Accordingly, main interest has been paid on output and productivity growth. Since unemployment is closely correlated with output growth through the Okun’s Law, this paper aims to address the causal nexus amidst military expenditure per capita and unemployment for a large set of Central and Eastern European countries by considering a relatively novel approach in the empirical literature. Due to historical and geo-political reasons, the disputes and proliferation are also prevalent among those countries. Under these circumstances, investigating the economic effects of militarization deserves special attention for these countries. To this end, this paper conducts the panel bootstrap causality test approach that accounts for the slope heterogeneity and cross-country correlation over the period of 1996 and 2020. Within the presence of cross-country correlation and heterogeneity, the findings indicate the non-existence of causal interplay between military expenditure and unemployment regardless of measure for military expenditure. In particular, weak form of causality exists for Croatia and Czechia running from military expenditure per capita to unemployment. Moreover, causal interplay running from unemployment to military expenditure per capita exists only for Serbia.