THE IMPACT OF NATIONAL DEFENSE EXPENDITURE ON GROWTH OF ECONOMY IN SRI LANKA

This study aims to analyze the relationship between defense expenditure and growth of the economy in Sri Lanka applying annual data during the period between 1990-2019 by engaging the ARDL bounds test and the Granger causality test. Economic growth is considered as a dependent variable whereas; defense expenditure, broad money supply, capital investment and exchange rate are considered as independent variables for this study. The findings revealed that defense spending has a significant and positive effect on economic growth in the long- run. Exchange rate, capital investment and broad money supply have a significant and positive influence in the short-run and long-run. Further, the output of the Granger causality confirms the one-way association between the growth of the economy and defense expenditure. The study suggests that government should concentrate more on human capital development rather than spending on defense.