Does the Optimal Size of Defense Expenditure Exist? An Empirical Study on Turkey

The purpose of this study was to analyze whether an “inverted U” shape relationship between economic growth and defense expenditure or not, what the optimal ratio of defense expenditure for Turkey is, and whether Turkey’s defense expenditure in the period of 1990-2017 was optimal. The dependent variable of the study was the ratio of yearly economic growth, and independent variables were the ratio of defense expenditure in GDP and yearly unemployment rate respectively. Data which covered 1990-2017 period regarding Turkey was analyzed by using Time Series Analysis with FMOLS method. Economic growth and unemployment series were acquired from the Worldbank, while defense expenditure was from SIPRI data bank. According to the results; we have concluded that there is an “inverted U” shape the relationship between economic growth and defense expenditure. In other words, Armey Curve exists for Turkey. Also, we have observed the ratio of defense expenditure as 2.5% of the GDP. The defense expenditure of Turkey from 2010 is under this value of 2.5%. Considering this point; it can be put forward that Turkey may increase its defense expenditure up to 2.5% of the GDP to provide economic growth. Taking into account of the leading position and also the importance of the defense industry in the manufacturing industry, this evaluation is supported not only with the first law of Kaldor but also studies which propose that defense expenditure has positive effects on the economic growth as well