Do military expenditures impede economic growth in 48 Islamic countries? A panel data analysis with novel approaches

Unquestionably, all countries prioritize maintaining peace and fostering long-term sustainable economic growth. For this purpose, this study assessed the impact of military expenditure on economic growth using a multivariate regression model based on the enhanced production function in the presence of energy consumption. The study clustered 48 Islamic countries into their income levels over the period from 1990 to 2018, and using the dynamic common corrected effects in determining the elasticities of the explanatory variables. The empirical results revealed a negative effect of military expenditure on economic growth and the elasticity of military expenditure to economic growth was lowest in upper-middle-income countries than in the other three groups. In the main panel a 1% increase in military expenditure led to a 0.101% decrease in economic growth. The results of the paired Dumitrescu Hurlin panel causality test revealed a bidirectional causal affiliation between economic growth and military expenditure. In addition, the empirical findings revealed that the levels of military expenditure, as a component of total government expenditure, are too high in the employed economies and need to be transferred toward more productive non-military expenditure in order to improve the economic growth performance and other growth determinants.