2014 | 2 |
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This article investigates the impact of military expenditures on poverty in Pakistan (along with inflation, industrialization, service sector, and foreign direct investment) for both short-term and long-term perspectives. An effort is made to find out the role of military expenditures in poverty elimination. The question to be addressed is that whether military expenditures is pro-poverty or anti-poverty in Pakistan. A time series analysis is made for the period of 1972-2009. The problem of unit root is inspected by applying Ng-Perron (2001) test; the strength of relationship between military expenditures and poverty in the light of control variables is investigated by using Johansen and Juselius (1990), the long-term coefficients are examined by using Ordinary Least Square Method, and short-term dynamics are computed by applying Error Correction Mechanism. The results show that military expenditures and inflation are significantly elevating poverty in both short-term and long-term periods while the growth of industrial and service sectors help in reducing poverty in Pakistan. It has been diagnosed that the first period lag term of industry is significantly contributing to lowering poverty in the long-term period whereas in the short-term one industrialization does not significantly elevate poverty. It means it takes some time to bear the fruits of industrial growth in terms of reduction in poverty. Growth in the service sector does reduce poverty significantly in both short-term and long-term perspectives. Finally; foreign direct investments do not play any role in the reduction of poverty in the long-term period, but surprisingly it has some significant negative impact on poverty in the short run. From the empirical findings many policy implications can be deduced. The findings suggest that the military expenditure deteriorates the poverty situation in Pakistan. The viable policy option may be to revise the volume of military expenditures in perspective of the reallocation of resources from the defense expenditures to the expenditures on social development of the economy. The caution that requires to be considered is the proper and efficient reallocation of resources.
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