Effect of Oil Price on Arms Import in OPEC Countries: A Panel Threshold Model

Abstract

Oil-rich countries spend more of their oil revenue on arms import for
protecting their oil supplies against wars and insurgences. This paper
examines the relationship between arms imports and oil price using
panel threshold model for eleven selected OPEC countries. Results
indicate that multiple thresholds exist in arms import-oil price nexus. We
find that a change in oil price either below or above the threshold exerts
a negative effect on arms import. The result indicated that a change in
oil price would reduce expenditure on arm import of the selected OPEC
member countries as they may be interested in allocating more oil
revenue for development and growth.