Main Article Content

Isiaka Akande Raifu
Department of Economics, Faculty of Economics and Management Sciences, University of Ibadan, Ibadan, Oyo State
Vol. 11 No. 2 (2022), Articles, pages 167-192
Submitted: Nov 5, 2021 Accepted: Jun 27, 2022 Published: Dec 1, 2022
Copyright How to Cite


This study adopts ARDL and VAR estimation methods to examine whether military spending crowd-out or crowd-in private investment in Nigeria. We use the data that covers the period from 1970 to 2019. Our results, based on the ARDL method, show that military spending only crowds-out private investment in the short run. In the long run, military spending crowds in private investment. The results are robust to the use of alternative estimation methods. Specifically, IRF results show that military spending has a contemporaneous negative effect on private investment. However, the negative effect turns positive after the third period. Also, FEVD results show that most of the variation in private investment is explained by its shock and few by military spending. Our findings have policy implications. While it is advisable to spend more on the military to curtail the activities of insurgents, bandits and kidnappers and to restore confidence in investors, it is important also to take cognisance of the fact that military spending can crowd out private investment.

Article Details


Aderemi, T. A., Olayemi, H. O., Ebere, C. E., & Adeniran, A. A. (2018). Security Spending and Foreign Direct Investment Inflows: Evidence from the Nigerian Economy. IOSR Journal of Humanities and Social Sciences (IOSR-JHSS), 23(11), 29-35.

Ajefu, J. (2015) Impact of defence spending on economic growth in Africa: The Nigerian case. Journal of Developing Areas, 49(4), 227-244.

Akinlo, T., & Oyeleke, O. J. (2018). Effects of government expenditure on private investment in Nigerian Economy (1980-2016). Emerging Economy Studies, 4(2), 147-156.

Alptekin, A., & Levine, P. (2012). Military expenditure and economic growth: A meta- analysis. European Journal of Political Economy 28(4), 636-650.

Aminu, A., & Raifu, I. A. (2019). Dynamic nexus between oil revenues and economic growth in Nigeria. Econ Bull, 39(2), 1556-1570.

Apanisile, O. T., & Okunlola, O. C. (2014). An empirical analysis of effects of military spending on economic growth in Nigeria: A bounds testing approach to co-integration 1989-2013. Journal of Public Administration, Finance and Law, 6(6), 117-130.

Atanassovy, J., & Nanda, V. (2018). Crowding-out Innovation. In Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association (Vol. 111, pp. 1-64). National Tax Association.

Atesoglu, H. S. (2004). Defense spending and investment in the United States. Journal of Post Keynesian Economics, 27(1), 163-170.

Ayange, A., Samuel, U. E., Prince, A. I., & Ndubuaku, V. (2020). Security expenditure on economic growth in Nigeria. Humanities and Social Sciences Review, 8(3), 553-561.

Caruso, R., & Di Domizio, M. (2017). Military spending and budget deficits: the impact of US military spending on public debt in Europe (1988-2013). Defence and Peace Economics, 28(5), 534-549.

Deger, S., (1986), Military Expenditure in the Third World Countries: The Economic Effect, Routledge and Kegan Paul, London.

Dunne, J. P., & Smith, R. P. (2020). Military expenditure, investment and growth. Defence and Peace Economics, 31(6), 601-614.

Edith, E. C., Abolore, Y. F., OA, A. O., & Moses, S. G. (2019). Security Spending and Foreign Direct Investment Inflows in Nigeria: An Autoregressive Distributed Lag Model Approach.

Gold, D. (1997). Evaluating the trade‐off between military spending and investment in the United States. Defence and Peace Economics, 8(3), 251-266.

Hou, N., & Chen, B. (2014). Military expenditure and investment in OECD countries: Revisited. Peace Economics, Peace Science and Public Policy, 20(4), 621-630.

Jelilov, G., Ozden, K., & Briggs, S. O. (2018). Impact of insecurity on investment in Nigeria. Journal of Management, Economics, and Industrial Organization, 2(3), 41-61.

Kennedy, P. S. J. (2021). The Effect of Defense Spending on Private Investment in Indonesia Based on Historical Data for the Period 1981-2010. Palarch's Journal of Archaeology of Egypt/Egyptology, 18(4), 7094-7102.

Keynes, J. M. (2018). The general theory of employment, interest, and money. Springer (Original work published 1936).

Kimenyi, M., Adibe, J., Djiré, M., Jirgi, A. J., Kergna, A., Deressa, T. T., & Westbury, A. (2014). The impact of conflict and political instability on agricultural investments in Mali and Nigeria. Africa Growth Initiative (Vol. 17). Working Paper.

Knight, M., Loayza, N., & Villanueva, D. (1996). The peace dividend: military spending cuts and economic growth. Staff papers, 43(1), 1-37.

Kollias, C., & Paleologou, S. M. (2019). Military spending, economic growth and investment: a disaggregated analysis by income group. Empirical Economics, 56(3), 935-958.

Loayza, N., Knight, M., & Villanueva, D. (1999). The peace dividend: military spending cuts and economic growth. The World Bank.

Lorusso, M., & Pieroni, L. (2017). The effects of military and non-military government expenditures on private consumption. Journal of Peace Research, 54(3), 442-456.

Malizard, J. (2015). Does military expenditure crowd out private investment? A disaggregated perspective for the case of France. Economic Modelling, 46, 44-52.

Mintz, A., & Huang, C. (1990). Defense expenditures, economic growth, and the "peace dividend". American Political Science Review, 84(4), 1283-1293.

Morales-Ramos, E. (2002). Defence R&D expenditure: The crowding-out hypothesis. Defence and Peace Economics, 13(5), 365-383.

Oji, C. E., & Afolabi, J.A. (2022). Economic and Peace Effects of Terrorism in the 21st Century. International Journal of Public Law and Policy, 8(2): 144-157.

Okereocha, C. (2012), "Heartache for the Economy", TELL, May 14, Pp. 46 - 47.

Olaifa, F. G., & Benjamin, O. O. (2020). Government Capital Expenditure and Private Sector Investment in Nigeria: Co-integration Regression and Toda-Yamamoto Causality Analysis. Advanced Journal of Social Science, 6(1), 71-82.

Olubunmi, A. A. (2018). Insecurity and Major Determinants of Foreign Direct Investment in Nigeria. International Journal of Humanities and Social Science Research, 4, 54-63.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

Pieroni, L. (2009). Does defence expenditure affect private consumption? Evidence from the United States. Economic Modelling, 26(6), 1300-1309.

Raifu I. A., & Afolabi, J. A. (2022). Military Expenditure and Unemployment in South Africa: Evidence from Linear and Nonlinear ARDL with and without Structural Break. Economic Alternative

Raifu I. A., Obijole, E. O. & Nnadozie, O. O. (2022). The Role of Institutional Quality in Military Spending and Unemployment Nexus in Nigeria. Peace Economics, Peace Science and Public Policy, Vol. 28 Issue 2, pp. 155-194.

Raifu, I. A. (2021). The institutional role in oil revenue‐economic growth nexus in Nigeria. OPEC Energy Review, 45(1), 52-84.

Raifu, I. A., & Aminu, A. (2020). A reconsideration of Wagner's hypothesis for Nigeria using linear and nonlinear ARDL methods. International Journal of Sustainable Economy, 12(4), 321-343.

Raifu, I. A., & Raheem, A. N. (2018). Do Government Revenues Matter for Economic Growth? Evidence from Nigeria. European Journal of Government and Economics, 7(1), 60-84.

Raifu, I. A., Aminu, A., & Folawewo, A. O. (2020). Investigating the relationship between changes in oil prices and unemployment rate in Nigeria: linear and nonlinear autoregressive distributed lag approaches. Future Business Journal, 6(1), 1-18.

Saba, S. C., & Ngepah, N. (2019). Military expenditure and economic growth: evidence from a heterogeneous panel of African countries. Economic research-Ekonomska istraživanja, 32(1), 3586-3606.

Sajid, M. J. (2021). Continued increases in military and police spending can lead to economic collapse. In E3S Web of Conferences (Vol. 253, p. 03036). EDP Sciences.

Scott, J. P. (2001). Does UK defence spending crowd‐out UK private sector investment? Defence and Peace Economics, 12(4), 325-336.

Shahbaz, M., Afza, T., & Shabbir, M. S. (2013). Does defence spending impede economic growth? Cointegration and causality analysis for Pakistan. Defence and Peace Economics, 24(2), 105-120.

Shan, J. (2002). A VAR approach to the economics of FDI in China. Applied Economics, 34(7), 885-893.

Sims, C. A. (1980). Macroeconomics and reality. Econometrica: Journal of the Econometric Society, 1-48.

Smith, R. P. (1980). Military expenditure and investment in OECD countries, 1954- 1973. Journal of comparative economics, 4(1), 19-32.

Smith, R., & Dunne, P. (2001). Military expenditure growth and investment. Birbeck College and Middlesex University Business School, Abril.

Stratmann, T. & Okolski, G.L. (2010). Does government spending affect economic growth? Monetary Policy Mercatus on Policy Series June 10, Mercatus Center, George Mason University.

Temitope, L., & Ajala, O. (2021) Military expenditure and economic growth: Evidence from Nigeria. American Journal of Economics, 11, 10-18.

Thia, J. P. (2020). Deficits and crowding out through private loan spreads. The Quarterly Review of Economics and Finance, 77, 98-107.

Üçler, G. (2016). Testing the relationship between military spending and private investments: Evidence from Turkey. Theoretical & Applied Economics, 23(3).

Wagner, R. E. (2007). Fiscal sociology and the theory of public finance: An exploratory essay. Edward Elgar Publishing.

Yusuf, A., & Mohd, S. (2022). Growth and Fiscal Effects of Insecurity on the Nigerian Economy. The European Journal of Development Research, 1-27.