The relationship between crude oil exports, crude oil prices and military expenditures in some OPEC countries

Abstract

This paper examines the causality between crude oil exports, crude oil prices and military expenditures over the period from 1980 to 2016 for the seven OPEC countries (Algeria, Ecuador, Iran, Kuwait, Nigeria and Saudi Arabia and Venezuela). A panel Granger causality test suggested by Dumitrescu and Hurlin (2012) is applied as bivariate and trivariate analysis, separately. Five of six bivariate causality analyses show the existence of panel Granger causality. The test also shows that there is panel Granger causality running from crude oil exports and crude oil prices to military expenditures, from crude oil exports and military expenditures to crude oil prices, and from military expenditures and crude oil prices to crude oil exports, as a result of trivariate analysis. It is concluded that some OPEC countries examined in the study transferred some of their oil revenues to military expenditures that are considered economically inefficient. Moreover, it is concluded that the link between oil revenues and military spending depends on the political independence, geographical location and/or the threat of terrorism and war for each country.