Abstract:

The size of the threats faced due to strategic and geopolitical reasons leads Turkey to sustain and increase its defence expenditures. This study investigates whether Turkey's defence expenditure is influenced by macroeconomic variables that impact the country's economy and the geopolitical risk index. Among the selected macroeconomic indicators are inflation, economic growth, foreign trade balance, and unemployment variables. The impact of these selected indicators and the geopolitical risk index on defence expenditures is examined through the ARDL bounds testing approach and Toda-Yamamoto causality analysis. The results of the ARDL bounds test indicate a statistically significant positive long-term relationship between inflation and unemployment with defence expenditures, while a statistically significant negative relationship is observed between foreign trade balance and economic growth with defence expenditures. The Toda-Yamamoto causality analysis reveals a statistically significant causal relationship from unemployment, economic growth, inflation, foreign trade balance, and the geopolitical risk index towards defence expenditures.

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