Abstract

The economic impact of military expenditure on an economy’s indebtedness is crucial for both developed and developing countries. According to the Stockholm International Peace Research Institute (SIPRI), world military spending accounted for 2.4% of global gross domestic product (GDP) in 2020. Total spending was 2.6% higher than in 2019 and 9.3 % higher than in 2011. Over roughly the same period, the military expenditure of North African countries have experienced tremendous growth. It rose, on average, by 73% from 2010 to 2020 in nominal terms. This increase in military spending coincided with a rapid
accumulation of North African countries external debt. The external debt of North African countries more than doubled from $79.1 billion to $168.2 billion between 2010 and 2019. Most of the literature on military expenditure focuses on its impact on economic growth. However, studies examining the relationship between miilitary expenditure and external debt have been relatively rare. This paper examines the long run effects and short-run dynamics of military expenditure on external debt in North Africa, using a panel regression for country-level observations over the period from 1995 to 2020. The paper focuses on four North African countries: Egypt, Tunisia, Algeria, and Morocco. The quantitative evidence shows that external debt is elastic with respect to military expenditure in the short-run, but not in the long run. In the short-run, a 1% increase in military expenditure leads to an increase in external debt by almost 0.35% while a 1% increases in economic growth decreases external debt by 0.6%.