Defense Spending and Unemployment. Evidence from Southern European Countries

Abstract

AbstractThis paper applies the ARDL approach to cointegration in order to address the defense unemployment nexus. We use information on Portugal, Italy, Greece and Spain for the period 1960–2015. Our main results suggest that: (i) there is a stable long-run relationship between the variables under consideration for Portugal, Greece and Spain. (ii) Defense spending decreases (increases) unemployment for the case of Portugal and Greece (Spain), (iii) the impact of non-defense spending is weaker than that of defense spending and (iv) Okun’s law is validated for Portugal, Greece and Spain. (v) These results are robust to the use of heterogeneous panel cointegration and causality analysis.