Acta Universitatis Danubius. Œconomica, Vol 15, No 3 (2019)

Abstract

Empirical studies on military expenditure-growth nexus in individual countries and cross-national countries abound, however, to the best knowledge of the authors; there are no studies on the impact of military expenditure and Institutional quality on Inclusive growth. The objective of this paper is to fill the gap by investigate the impact of military expenditure and institutional quality on BRICS inclusive growth from 1984 to 2017. This paper adopted BRICS countries because they account for about 26.11 % of total world military expenditure. Due to the heterogeneous nature of BRICS countries, the countries were grouped into Upper Middle Income countries and Lower Middle Income countries using the World Bank Income Classification. In addition, corruption was adopted as the reliable proxy for institutional quality, since corruption is often a symptom of bad institution.

The result of the impact of military expenditure and corruption on inclusive growth in the lower middle-income group indicates that military expenditure and corruption have positive and statistically significant effects on inclusive growth while the interactive term has negative and statistically significant effect on inclusive growth. This implies military expenditure reduces inclusive growth in the face of corruption. However, for the upper middle income, military expenditure is negative and significant as against that of lower middle income. Corruption and interactive term have negative effects on inclusive growth but both are statistically insignificant.