The Impact of Military Spending on Tourism Performance in Malaysia

Abstract

Abstract

This study employs an Autoregressive Distributed Lag (ARDL) bounds testing approach to investigate the long- and short-run impact of military expenditure on tourism performance in Malaysia based on the comprehensive analysis of time-series data from 1995 to 2020, controlling for key macroeconomic variables.  The empirical results reveal a significant positive long-run relationship, where a 1% increase in military spending is associated with a 1.21% to 1.89% increase in tourism arrivals and receipts, suggesting that defence allocations may enhance tourism through improved security and infrastructure. However, tourism is also found to be highly sensitive to domestic economic conditions, exhibiting a pro-cyclical relationship with significant negative impacts from unemployment and inflation. The significant and negative error correction terms confirm a rapid adjustment to long-run equilibrium. These findings provide critical insights for policymakers in balancing national security expenditures with tourism-driven economic diversification strategies, particularly in stable, emerging economies like Malaysia.