The relationship between external debt, defence expenditures and GNP revisited: The case of Turkey

Abstract

This paper extends the Looney and Frederiksen (1986) study and investigates the relationship among external debt, defence expenditures and GNP in Turkey for 1960 - 2002. After applying cointegration analysis of a multivariate system of equations, impulse response functions and variance decomposition are estimated. The impulse response functions indicate that defence expenditures have a positive effect on external debt stock. Moreover, impulse response of GNP to defence expenditures tended to hike slightly within two years ahead, and dipped sharply by two years, and thereafter continued at a positive level.