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Abstract

This study analyses the nexus between military spending and inflation in Nigeria, comparing the results from the mean-based OLS, FMOLS, DOLS, and GMM estimators with those obtained from Instrumental Variable Quantile Regression (IVQR), as well as the Toda–Yamamoto (TY) and LA-VAR time-varying Granger causality tests. While the mean-based estimators indicated that military spending has no significant effect on inflation, the IVQR results revealed significant heterogeneous effects across different inflation quantiles. The TY causality test identified a unidirectional causal relationship running from military spending to inflation. In contrast, the forward, rolling, and recursive time-varying Granger causality tests consistently indicated a bidirectional causal relationship between the two variables. This suggests that military spending and inflation in Nigeria are mutually endogenous. Furthermore, the plots of the algorithmic test statistics against the corresponding 90th and 95th percentile critical values confirmed that the direction and intensity of causality varied over time. Overall, the findings underscore the need for flexible and adaptive macroeconomic policies capable of addressing the evolving dynamics between rising military expenditure and inflationary pressures.