Impacts of military expenditure and institutional quality on inclusive growth in BRICS countries.

Abstract

This study investigated the relationship between military expenditure, institutional quality and inclusive growth in BRICS countries from 1970 to 2017. The increase in military expenditure by BRICS and the worsening inclusive growth indices such as unemployment, inequality, poverty, among others, necessitated the assessment of the relationship between military expenditure, institutional quality and inclusive growth in the BRICS countries. The study was carried out under three modular themes, which also form the objectives of the study, namely; the determinants of military expenditure, computation of inclusive growth index for the BRICS and the effects of military expenditure and institutional quality on the inclusive growth index of the BRICS countries. Panel data analysis was applied for the first objective, the Z-score technique was used for the second objective, which involved the computation of inclusive growth index for BRICS. The third objective was analysed using the Auto-Regressive Distributed Lags ARDL for BRICS countries by using times series data. The results obtained on the first objective revealed that BRICS military expenditure was significantly and majorly determined by Gross Domestic Product (GDP), trade balance, security web and inflation rate for the period under analysis. The results on Objective 2 revealed that the average inclusive growth index for Russia was the highest among the five BRICS countries, followed by China and Brazil. However, South Africa and India fell below the average inclusive growth index computed for BRICS. The results on Objective 3 showed that the impacts of military expenditure and institutional quality on inclusive growth varied among the BRICS countries. From the literature, the most effective way of assessment is to focus on the impact of the interactive form of military expenditure and institutional quality. Findings revealed that the interactive form of military expenditure and institutional quality (MCP) only have significant impact on inclusive growth of Russia because the coefficient is positive and significant. The coefficient is negative and significant for China and South Africa while the same coefficient is not significant at all in Brazil and India. This implies that Russia is the only country in the BRICS where the interaction of military expenditure and institutional quality supports inclusive growth. Notwithstanding, other control variables such as education and population have statistically significant effects on inclusive growth in Brazil, China and South Africa. Results on India emerged as a complete outlier among the five as none of the variables, including the control variables was found to have a statistically significant relationship with inclusive growth. Again, the efforts in this study included a comparison of the inclusive growth results with those of economic growth and per capita income which have been used by previous studies to investigate the effect of military expenditure on the BRICS economy. The results showed that findings under the Inclusive Growth Model were the same for that of economic growth and per capita income for Russia, China and South Africa. However, there are some differences firstly; the negative effect of the interaction of military expenditure and institutional quality in Brazil which is significant on inclusive growth is not significant on economic growth and per capita income. This shows that the adverse effect of this variable was more felt on inclusive growth than economic growth in Brazil. Again, military expenditure and institutional quality showed a positive significant impact on India’s economic growth and per capita income, but the effect on inclusive growth was not significant. Finally, levels of investment in all the countries have shown significant positive impacts on economic growth and per capita income, but the current levels of investments in the BRICS fail to drive inclusive growth significantly except in Russia. These results further confirmed that assessment of the impacts of military expenditure and institutional quality using economic growth and not inclusive growth might be misleading. Based on the findings from this study, the following recommendations are made: First, there is the need for improvement of synergy between military expenditures and institutional quality before the challenge of inclusive growth in the BRICS can be tackled effectively. Second, prioritising inclusive growth more than economic growth is more germane to the assessment of the effectiveness of military expenditure.