Are the military expenditures of India and Pakistan external determinants for each other: An empirical investigation

Empirical modeling of arms race between India and Pakistan has been a focus of interest in many studies. Nevertheless, the possibility of asymmetric dynamics between the variables under question seems to be ignored in these studies. The purpose of this paper is to fill this gap of the earlier literature by examining possible asymmetric effects of military expenditures of India and Pakistan on each other. It is assumed that asymmetry is due to the existence of two distinct regimes characterizing the variable of interest, with regime shift being a function of either a past value of the dependent or an exogenous variable. Smooth transition class of nonlinear models is used in the study. The results for Pakistan indicate that India's military expenditure have more deep effects when the past military expenditure of Pakistan is high, implying asymmetric relationship between the two variables.