**1. Introduction**

Considered to be one of the most important budget expenditures, military expenditure (ME) has played a significant role in macroeconomics over time. At this time, many studies have tried to explain the relationship between ME and GDP [1–3]. According to the studies, a substantial amount of budgetary provisions in many developing countries is heading for defense and security, and most of the time they are at the expense of allocating them for economic, social, and investment services. Therefore, the "guns for butter" theory points out that the increased ME results in lower resource allocation in other productive economic sectors, such as education and healthcare, and then hinders sustainable development. From this perspective, the allocation of budget expenditure has raised serious concerns among researchers and decision-makers, considering the role of military spending in sustainable economic growth.

Starting with the analysis period of 1980 in Romania, the annual budgetary laws elaborated until 1989 could be considered a paradox of the socialist system in our country. Although the overwhelming role of the state in a centralized economy was promoted, the socialist state relied on the "golden rule" of the budgetary balance in classical liberal theory. Therefore, budgets were built on income approaches, not related to the public expenditure of the political leadership that exerted the state power after 1989. Depending on the accumulated revenues, expenditures were planned, the changes that could have existed due to the occurrence of provisions, the achievements reflecting budgetary surpluses.

Since 2000, the budget for military expenditures has also been set by taking into account the costs of ensuring interoperability in the Euro-Atlantic integration actions. Moreover, other important goals were considered when establishing military expenditures, such as participation in peacekeeping operations for the involvement of the Romanian Armed Forces in the Partnership for Peace Program, for the establishment of the Rapid Reaction Force, as well as for other actions approved by law. According to historical data, the ME for Romania in 2009 recorded a significant decrease compared to 2008, but still higher than in the previous period 2005–2007. At that time, the North Atlantic Treaty Organization (NATO) data argued that at the US level, military spending was twice as high as the total expenditure of all Member States.

Romania's military costs exceeded for the first time the \$3 billion thresholds in 2016, more than the Hungarian and Czech Republic's cumulative military budgets, and the amounts allocated to Greece for this purpose. Additionally, this year, the executive power decided that equipment purchases or repairs of the fighting technique could also be funded from the government's reserve fund, which would make it difficult to calculate Romania's actual military spending. Thus, after many decades, 2016 was the first year in which Romania's defense budget exceeded that of Greece, a country where the gross domestic product (GDP) was higher than in Romania.

In 2016, the largest defensive budgets in the eastern region of the continent, without taking into account Russia and Turkey, were allocated by Poland, Romania, Greece, Ukraine, the Czech Republic and Hungary, with the remaining states in the region having military budgets under one billion dollars. In 2016, from a logistical point of view, we can remember that Romania was distinguished by ensuring air security, one of the country's major defense vulnerabilities, receiving the first six aircraft F16 A/B Block 15 US Airplanes upgraded to M 5.2 of the 12th Squadron, which were purchased from Portugal, and three were supplied by the United States and continued to improve the fleet through various administrative programs, the budget spending on military spending rising to the detriment of other more productive sectors. From the point of view of the security and defense of the state, Romania was involved in the CSDP (Common Security and Common Security Policy) from its incipient stages, building its profile being an active participant in this structure, both on the political dimension, dedicated supporting the interests identified by the Member States as common to the security and defense and operational ones, contributing to the many civilian missions and military crisis management operations of the EU. Romania is a major member of important CSDP structures: The EU Satellite Center in Torrejon (Spain), the European Security Studies Institute in Paris (France) or the EDA European Defense Agency in Brussels. In this context, our country is involved in several capacity development programs: Capacity Development Plan, EU/EU Battlegroups, BGS. On the military side, Romania contributes to operations such as EUFOR Althea in Bosnia and Herzegovina, EUTM Somalia, EUNAVFOR Atalanta, EUTM RCA—Central African Republic, EUNAVFOR MED Sophia.

Romania's priorities in the field of national defense policy are outlined by three vectors, namely the development of the EU defense capabilities, the common security and defense policy in complementarity with NATO, based on the declaration in the field adopted at the NATO Summit of Warsaw and the promotion of priorities in the perspective of Romania's holding of the EU Council's bi-annual presidency in 2019 and the revival of the national defense industry by 2026. The above-mentioned vectors are found in concrete actions targeted by the Ministry of National Defense for the period 2015–2019 with reference, in particular, to the National Defense Strategy of the country becoming a strong Romania in Europe and the world, establishing national security and defense objectives, Romania's NATO and EU

profile, strengthening the strategic partnership with the US, ensuring security in the Black Sea region, deepening cooperation with neighboring and eastern flank countries, enhancing regional cooperation, including in defense and promotion of political and economic security in regions of strategic relevance for Romania.

Security and defense are in a cause-effect relationship with growth and must be directly proportional to innovation, requiring major investment in defense. Romania is now welcoming the idea of a European Union of Defense, with the Member States being able to enjoy without discrimination the same benefits of defense unions, which are functional, equitable, accessible and transparent, promoting technological innovation, facilitating cross-border access for enterprises small and medium-sized resources and associated costs. To cope with security risks, cohesion and consensus at EU level are needed on the issues facing Romania, especially in the face of terrorist threats. By virtue of these considerations, Romania supports the correlation of the projects under the European Defense Fund with those to be planned through permanent structural cooperation (PESCO), the role of the European Defense Agency in both cases being major.

The ambitious EU and hence of Romania's "Shared Security and Defense" scenario is based on the pooling by the Member States of some financial and operational resources, such as increased solidarity. In the defense field, the EU becoming more involved in Europe's protection inside and outside its borders. The EU will take a more prominent role in areas such as strengthening the security dimension and defending internal EU policies, cybersecurity, border protection and the fight against terrorism. The most reasoned scenario, entitled "Common Security and Defense", refers to the progressive definition of a Union common defense policy that would lead to a common defense under Article 42 of the EU Treaty as stated in the Extract of the "Texts Adopted" document, 21–24 November 2016, European Parliament. The EU will be able to carry out high-level security and defense operations, backed by a high degree of integration of the Member States' defense forces.

The 21st century is the era in which each person's security is one of the most essential needs. The Sustainable Development Goals (SDGs) ask to promote peaceful societies for sustainable development, provide access to justice for all citizens. To ensure internal and external security for citizens is the mission of a state. Therefore, politicians have to decide how much money they allocate to the defense sector. This article, therefore, aims to study the existence of the causal relationship between military expenditures and sustainable economic development in Romania. Moreover, we contribute to the existing literature through the updated recently updated data set and concentrating on the Eastern European country—Romania, who joined the EU and NATO. The policy changes from EU, NATO and the own government may affect the causal relationship between these two variables, that is, structural changes will lead to inaccurate results. Furthermore, different from the Western European countries, which are mainly typical military economies, Romania is a transition economy and hence may possess distinctive characteristics. Furthermore, we innovatively employ the bootstrap rolling-window method to estimate the causality. This method is distinctive from most conventional mathematical approaches, which cannot identify the sub-sample relationships between the time series and cannot reveal how such relationships vary over time. This issue can be solved by allowing the causal relationship between ME and the GDP to be time-varying rather than using full-sample data that assume the single causality holds in every period. In consequence, the empirical results highlight that defense spending will affect economic growth positively or negatively through different channels in the 1980–2018 sample period. Accordingly, policymakers should make reasonable military expenditure plans to prevent hindering sustainable economic growth.

The following study is structured as the second part mentions the literature review. The third part analyzes the theoretical foundation. The methodology is described in the fourth part, and in the fifth part being presented the data and empirical results. The last section of the study represents the conclusions and discussion.

#### **2. Literature Review**

Empirical investigations provide evidence that causality relationships between ME and GDP are inconsistent, the results are not unitary, some negative, some highlight positive correlations, others insignificant.

In the numerous research papers, a large number of methods are identified that demonstrate that ME can affect GDP (LaCivita and Frederikesen [4]). The main factor was the overcoming of the defense budget in some states compared to the budgets allocated in other fields of activity, more productive and profit-making. Traditional arts versus butter suggests that defense spending impedes GDP by eliminating investment and consumption. In specific, there is a negative 'trade-off' between defense and education expenditures, which is not conducive to sustainable development.

The arguments made by the researchers have shown that ME prevents long-term sustainable development in some less developed countries, due to unfunded investments, inflationary pressures and the reduction of the allocation of resources in the field of investments and in other areas generating more productive jobs in order to increase the standard of living. Kollias [5] find that all these channels through which the defense sector can influence—the promotion or the delay—the increase presupposes that such expenditures are in a causal relationship with the GDP. The empirical evidence provided by Lebovic [6], Mintz [7], Scheetz [8], Ward [9], Asseery [10], Dunne [11], Dunne et al. [12], Mylonidis [13], and Pieroni [14] support the argument that military spending prevents GDP in terms of investment, health, education, and infrastructure improvements, which is not following the requirements of SDGs. Eryigit [15] also underlines the negative effect of the ME on GDP in Turkey, based on the cointegration method that allows structural breaks. Hou [16] indicates a negative correlation between ME and GDP in more developed countries. Other reports about this are available from Karagol [17], Karagol [18], Mylonidis [13], Smith [19], Abu [20]. Karadam et al. [21] attempt to analyze the use of nonlinear panels to examine the effects of ME on GDP for the countries of the Middle East. The conclusions of the analyzes show that the impact of ME on GDP is not linear and even inconclusive in some cases. The results also indicate that the increase of ME and arms imports of a state has a major influence and a negative impact on GDP.

There are also some cases where research shows that ME stimulates GDP and has a positive influence on economic well-being. For instance, Benoit [22] suggests that ME positively impacts economic development, and the impact of ME on GDP has been extensively examined in this respect. Deger [23] argues that military and security spending disproportionately hinders economic efficiency, although it otherwise ensures peace, stability, and national suffocation, which, in turn, are necessary for economic progress. Lee and Chang [24] study the correlation between ME and GDP in Taiwan over a longer period by analyzing multivariate co-aggregation, it demonstrates the ME can boost economic performance significantly. Wijeweera and Webb [25] conclude that an analysis performed based on aggregate demand is the most appropriate method to analyze the correlation between the variables studied for the case in Sri Lanka. Following their studies, it was concluded that there could be an increase in GDP in Sri Lanka if the budgetary allocations of the authorities were different and the allocations to the production and investment sectors would be higher. Their article concludes that some positive economic results depend entirely on the political decisions of the state. Sheikh [26] find the positive link between military spending and GDP apply the GMM method. Inequality is proving to be negatively associated with GDP. Daddi [27] investigate the impact of ME on GDP in Italy, the results showed that there is a military burden that has significant effects on GDP, promoting "peacekeeping" productivity and humanitarian missions that reduce insecurity from the external threat and implicitly of the investments and the jobs. García et al. [28] analyze the influence of the allocation of the defense budget in Spain and its autonomous agencies and mention the effects of the cross-sectoral effects on the rest of the economy. The results show that the activity in the military sector and the activity of the agencies generated 1.2% of the GDP of the country and 1.7% of the total employment during 2010. Su et al. [29] also demonstrate the existence of a positive bidirectional causal relationship between GDP and ME in their studies, which suggests the interdependence between variables and in China.

In the context of Eastern European countries, ME was regarded as an effective factor for the arms race in these countries during the Cold War. Since the early 1990s, these countries have developed different economic and political structures, including participation in EU membership, democracy, political and economic transformation. However, few studies conducted to examine the relationship between ME and economic growth in this region. Topcu and Arasend [30] find the end of the Cold War had a significant negative impact on defense spending in east-European countries. Topcu and Aras [31] further indicate that there is no long-term relationship between ME and GDP and there exists a unidirectional causality running from economic growth to ME in central and Eastern countries.

More comprehensively, some literature indicates that there is a heterogeneous correlation between ME and GDP among countries. Churchill and Yew [32] use the meta-analysis to prove that the positive effects of ME on growth are more pronounced for developed countries than less-developed countries. Topcu and Arasend [30] even state that the correlation is not uniformed across all EU members. Desli and Gkoulgkoutsika [33] employ the dynamic common correlated effects estimator to test the effect of ME on GDP. Overall, the worldwide effect of military spending on economic growth over the period 1960–2017 appears to be negative owing to the cold war and is especially evident for the NATO countries. However, at the country-specific level, some economies consistently benefit or suffer from military spending varying over different time periods.

According to research studies, the researchers mentioned that there is a clear relationship between GDP and GDP. However, there are still scholars who imply that there is no significant causality between the two variables, particularly when the ME is low [34,35]. Overall, it are still ambiguities regarding the interaction between ME and sustainable economic performance. Additionally, most of the studies assume the linear nexus, ignoring time-varying features of time series. Moreover, previous literature tends to focus on developed countries. The regions of Eastern Europe are prone to be less studied. Lastly, it is obvious that the unidirectional effect from ME on GDP has been widely investigated. However, the bi-directional causality regarding this topic is inconclusive.
