The Adjustment of National Strategy: Prioritize National Defence Construction or Economic Construction -An Empirical Analysis Based on MS-AR Model

This paper was inspired by Laurent Ferrara(2003), which chose the time series for national defense expense accounts for the central fiscal expenditure ratio during 1953-2010 as the empirical data, and applied MS-AR model to regime switching test. Research results show that: the Classification Schedule obtained by the model agreed with China’ actual case very well, and the time series was indeed influenced by National Strategy; China's national defense policy was defensive, national defense construction was subject to economic construction, and as long as there was no serious threat to national sovereignty and security, defense expenditure would not have substantial increase; the study further proved that the recent increase for defense expenditure was moderate and reasonable, striking back at the “China threat theory ”.