Military spending crowding out health and education spending: which views are valid in Egypt?

This study examines the relationship between government spending, specifically military spending, government spending on health, government spending on education, and economic growth in Egypt over the period from 1980 to 2021. The paper utilizes a Granger causality test to detect the directional relationship between spending components and GDP growth. Furthermore, an autoregressive distributed lag (ARDL) model, including error-correction models, was established to determine the long- and short-term relationships among these variables. The study contrasts Wagner's versus Keynes's views of the government spending relationship with economic growth, with a greater emphasis on Keynes's argument for military spending enhancing economic growth. While previous studies have investigated the relationship between aggregate spending and economic growth from a single or two-way direction of causality, the present study contributes to the literature by exploring the possibility of military spending crowding out spending on health and education and detecting this causality and dynamic relationship. The empirical results support the Keynesian view of causality from all government spending components to economic growth. However, short- and long-term analyses revealed a negative relationship between military spending and economic growth. Moreover, the short-term impact of government spending on education and health on economic growth is negative, but positive in the long-term. Finally, the causality test revealed that military spending influences health and education spending. Additionally, a unidirectional relationship exists between military spending and health expenditure, which requires further research. The policy implication of this study shows that although spending is exogenous to economic growth, it does not align with the Keynesian view of inducing growth. Instead, spending has negative current and future implications for economic development.

Eman Elish, Hossam Eldien Ahmed, Mostafa E. AboElsoud