FINANCING THE DEFENSE INDUSTRY AS A FACTOR OF THE FINANCIAL SECURITY OF UKRAINE
Abstract
The paper addresses the problem of financing the defence industry as a structural determinant of the state’s financial security under conditions of prolonged military pressure and constrained public resources. In the context of large-scale security challenges, the effectiveness of budgetary support for strategically important industries becomes a critical factor shaping macrofinancial stability and the resilience of public finances. The purpose of the study is to assess the short- and long-term effects of government expenditure on the production performance of defence enterprises and to determine the extent to which such financing contributes to strengthening the financial security framework. The methodological approach is based on a combination of structural analysis of public expenditure, comparative assessment of funding sources, and econometric modelling of dynamic relationships between fiscal variables and industrial output. To identify equilibrium linkages and differentiate between short-run adjustments and long-run effects, a dynamic autoregressive distributed lag (ARDL) model is employed. The results demonstrate the existence of a statistically significant and stable long-term relationship between the scale of budgetary financing and the volume of realised defence output. An increase in public expenditure is associated with a more than proportional expansion of production, indicating the presence of a fiscal multiplier effect within the sector. At the same time, structural reallocations of expenditure towards development components reveal limited long-term significance when not supported by sufficient aggregate funding. The findings also highlight the predominance of short-term liabilities in enterprise financing structures, suggesting potential liquidity risks that may indirectly affect broader financial stability. The practical value of the article lies in substantiating the role of defence industry financing as a channel of fiscal policy transmission and as an instrument for managing financial security in terms of existential shocks.
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