New evidence from an alternative methodological approach to the defence spending-economic growth causality issues in the case of mainland China

Proposes to re-examine empirically the causal relationship between defence spending and economic growth in mainland China. Using a VAR modelling technique the results indicate a positive unidirectional causality flowing from defence spending to economic growth. By evaluating a dynamic vector error-correction model, variance decomposition and impulse response functions, then analyses the direction, duration and strength of Granger-causality between defence spending and economic growth. The results broadly indicate that defence spending and economic growth did share a common trend over the sample period under analysis, but it was the former which stimulated the latter. Moreover, it is defence spending that has a much more perceptible and prolonged effect on economic growth.