On the dynamics of the Israeli-Arab arms race

This article investigates the causal relationships between the military expenditures and military burden of the four major sides of the Israeli-Arab conflict, namely, Egypt, Israel, Jordan and Syria over the period 1960-2004. We utilize both the causality test suggested by Toda and Yamamoto [Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225-250] and the generalized forecast error variance decomposition method of [Pesaran, M. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58, 17-29]. Our findings suggest weak causality that runs usually from Israel's to Arab's military spending. The strongest links are between Israel and Syria that are still in a state of enmity. No causality was detected between Israel's and Jordan's military spending. (C) 2009 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved.