India: An ARDL Bounds Testing Approach

Using the ARDL approach for the years of 1972-2010, this study has employed the general model of aggregate defense expenditures to explore the determinants of defense spending for Pakistan and India. The demand for defense spending for both the countries is determined by economic, political and strategic factors. The findings of the study regarding economic determinants suggest that RGDP and Non-defense Government Expenditures positively influence the defense spending of both the countries while the trade balance has mixed results. The political determinant i.e. democracy index used as proxy for regime of government has positive effects on Pakistan’s defense spending while in India it has negative effects. The study finds out that the strategic factors such as atomic threat, internal threats and wars have positive impact on the defense expenditures of both the countries. Hence, the study has highlighted the cogent determinants of the defense spending in short run and long run suggesting that the arm race factor and associated economic and political factors are imperative for the defense spending of Pakistan and India