**3. Theoretical Foundation**

ME affects the economic growth of a country in two ways: Demand-side effect and supply-side effect [36]. The demand-side effect implies that ME increases the aggregate demand, which stimulates the employment rate and economic progress. While from the perspective of supply-side, ME will exert complicated effects on the economy. Specifically, on the one hand, based on opportunity cost theory, if ME is in a large share of the government budget, then this will crowd out the investment and the capital from the civilian economic activities due to the limited resources. Moreover, an increase in this spending would divert domestic credit from civilian production and raises the cost of these credits for the private sector. As a result, economic growth may deteriorate [37]. On the other hand, the supply-side effect denotes that infrastructure improvement and the related consumption effects through which the ME may indirectly contribute to economic development and technological innovation by the development of the public infrastructure such as roads, bridges, railway lines, airports, canals, dams, etc. These projects are especially helpful in the less developed countries and remote areas where civilian governments have fewer resources and incentives to invest in. However, military goods generated by defense spending are mainly nonproductive, which implies that defense spending induces more demand rather than more supply, resulting in inflation [38]. Extensive inflation is disadvantageous to the sustainable economic development. In addition, adequately sized, trained, and equipped force is necessary for national security to dissuade and even defeat enemies. In this view, if military security is compromised, then economic stability appears vulnerable.

On the contrary, economic development would have either a positive or negative effect on ME. Economic growth could provide more funds and resources for ME and public service. However, the growth in an economy does not necessarily mean an increase in ME. The national military strategic plans are different in every country, depending on the external and internal environments. Thus, the nexus between economic growth and ME varies across countries. If a country is trying to protect

the national security and wealth from external threats, such as terrorism, transnational crime, ethnic separatist, etc., then a causality that runs from economic growth to ME may hold. Otherwise, economic development may not necessarily promote ME.
