This paper examines the correlation between public policies in the field of military expenditures and economic growth in Romania. The research is built upon the vast literature focused on the field of public policies and economic growth. Whereas economic growth became one of the most dynamic areas in economics, this correlation will consider the determinants of the real sector development through economic phenomenon modeling. The impact of military expenditures on growth is analysed for Romania, using annual data over the period 1991–2016. The research methodology employed is the Granger causality test. The empirical results reveal that there is a bidirectional relationship between military expenditure and GDP over the long run, with a positive effect described by both relationships through several models exemplified in the analysis. From the economic point of view, these results highlight the impact of military expenditures, generating different positive effects on labor, capital, economic growth and efficient use of resources in the economic sector, at the national level.

Military spending and sustainable economic development have been widely discussed in recent decades. Especially in Romania, the defense budget is valued at $4.8 billion, registering a compound annual growth rate (CAGR) of 23.57%. It is also expected to reach $7.6 billion in 2023, according to a report by Strategic Defense Intelligence. There is no consensus in current research and less attention is paid to Eastern European countries. Considering the significant increase in military spending in Romania in recent years, as well as the occurrence of political events, this paper focuses on the dynamic causal relationship between military spending and sustainable economic growth in Romania. The bootstrap rolling window causality test takes into account the structural changes, and therefore, provides more convincing results. The results indicate negative effects of military expenditure on sustainable economic growth between 1996–1999 and 2002–2004. It can be attributed to the crowding-out effect of public expenditure on private investment. The positive effect between the two variables analyzed is noticed with the accession of Romania to the North Atlantic Treaty Organization. Conversely, it is found that economic growth does not have a significant effect on military spending in Romania. Policymakers should guard against the crowding out of private consumption and investment due to excessive military spending and ensure to increase military expenditure on the premise of sustainable economic development.