International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Macroeconomic Determinants of Defence Expenditure in Nigeria (1970 – 2011)
Alexander Abraham Anfofum

This paper reviewed and analyzed the macroeconomic determinants of defence spending in Nigeria. Defence spending has continued to rise at the expense of limited financial resources, thus creating opportunity cost as other sectors of the economy are stifled of financial resources. Previous research studies provide mixed results on determinant of defence expenditures in developing countries. Macroeconomic variables like Revenue from oil and non oil sectors were ignored in previous studies. This study employed the technique of cointegration which helps to explain the long run relationship among variables. Also, the Granger causality test and vector autoregressive (VAR) model were utilized for the analysis of the study. The cointegration test revealed evidence of long run relationship of the variables in the model. The estimated least square equation showed that revenue from oil, revenue from other sectors and defence expenditure had a long run equilibrium relationship. The ganger causality test result showed evidence of unidirectional causality from oil and non oil revenue to defence expenditure. The result of the VAR model provides useful and reliable information about the response of a defence variable to innovations in another variable. The result was very robust as oil revenue, foreign exchange rate, real gross domestic product and non oil revenue had an outstanding long term influence on defence spending. The study recommends improve revenue collection, transparency and stable macroeconomic variables as a means of improving defence spending that creates a spin off effect in the economy.

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