BUILDING AN ARDL REGRESSION MODEL FOR ANALYZING THE ECONOMIC DETERMINANTS OF BRAZIL’S MILITARY EXPENDITURES (2000–2024)

Abstract

This study investigates the economic determinants of Brazil’s military expenditures from 2000 to 2024 using an Autoregressive Distributed Lag (ARDL) model. Annual data (25 observations) were sourced from the World Bank, SIPRI, IMF, Statista, Macrotrends, and TradingEconomics. The dependent variable is military spending as a share of GDP (milex_gdp), while explanatory variables include GDP growth, logarithm of GDP per capita, trade openness, public debt-to-GDP ratio, inflation, unemployment, and logarithm of population. Missing values were imputed via linear interpolation and trend-based estimates to maintain data integrity. Stationarity tests confirmed a mix of I (0) and I (1) variables, validating the use of the ARDL framework, which flexibly handles such heterogeneity without requiring differencing. The model specification includes a one-period lag of the dependent variable to capture expenditure inertia, alongside contemporaneous effects of the economic covariates. The model specification includes a one-period lag of the dependent variable to capture expenditure inertia, alongside contemporaneous effects of the economic covariates. Empirical results reveal statistically significant short-run influences from GDP growth, per capita income, public debt, and unemployment, with expenditure persistence of approximately 40%. Trade openness, inflation, and population size show no robust impact. Long-run multipliers, derived from the error-correction form, indicate amplified responses over time, particularly for income and debt variables. A 2025 forecast projects military spending at around 1,03% of GDP, consistent with observed stability and moderate growth assumptions. The findings highlight a dynamic trade-off: economic expansion supports defense allocation, while rising unemployment or affluence shifts fiscal priorities toward social welfare. The ARDL approach proves well-suited for small-sample macroeconomic analysis characterized by inertia and mixed integration orders. Policy implications emphasize the interplay between fiscal capacity, growth cycles, and security priorities in emerging economies.