Does high crude oil dependence influence Chinese military expenditure decision-making?

https://doi.org/10.1016/j.esr.2021.100653Get rights and content
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Highlights

  • Crude oil dependence is raising quickly for China.

  • The causal link between crude oil dependence and military expenditure is discussed.

  • The MF-VAF owns better explanatory power than LF-VAR.

  • The impulse-response finds time-varying relation across different quarters.

  • Important policy implications are provided for Chinese military strategy.

Abstract

This paper employs the mixed frequency vector autoregression (MF-VAR) to discuss the causal link between crude oil dependence and military expenditure in China. The empirical results demonstrate that the crude oil dependence Granger causes military expenditure and accounts for 66.8% of the long-run forecast error variance decomposition. That means the MF-VAR model owns stronger explanatory and asymptotic powers than conventional VAR with single frequency data. Besides, the impulse-response analysis finds time varying relationship between crude oil dependence and military expenditure across four quarters within one year period. Therefore, the Chinese People's Liberation Army, especially its Navy, is needed to take responsibility and active activities to assure crude oil transport security. Government, enterprises and institutes should increase investment in military innovation to promote the upgrading of weapons and equipment. The peaceful rise strategy should be reasserted to construct harmonious international relations, which is helpful for crude oil security, foreign energy investment and reduce unnecessary military expenditure.

Keywords

Economic growth
Military expenditure
Crude oil dependence
Mixed data sampling
Mixed frequency vector autoregression

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