Military Expenditure Growth and Investment (original) (raw)

Military Expenditure and Economic Growth: A Panel Data Analysis

This paper seeks to reinvestigate the relationship between military expenditure and economic growth by making use of the augmented Solow growth model. It also tends to explore the combined effect of military spending and armed conflicts on growth rate. Since the literature pertaining to defense economics depicts no consensus over the effects of military expenditure on the economy, the ongoing debate still becomes a topic of interest for many economists. This study reviews the recent publications in this regard and aims to contribute to the existing literature by making use of the most recent data for a pool of 61 countries. The theoretical framework is based on the augmented Solow growth model introduced by Mankiw et al. (1992) and first applied by Knight et al. (1996). Incorporating the same model used by Dunne (2005), this paper endeavors to access the impact military expenditure exerts on growth. Data for the period of 1988-2015 is employed for a pool of countries and a well-known theoretical model, fixed effect estimator, also known as the Least Square Dummy Variable (LSDV) has been used as a robust econometric technique. Findings of our empirical estimation suggest that military expenditure and arms imports have a negative impact on GDP per capita but military expenditure in the presence of external conflicts also has a negative and significant impact on growth, which is contrary to most of the earlier findings in literature. Our results imply that while spending on military acts as a burden for the economic growth, frequent interstate conflicts make it crucial for countries to spend further on their military sector which can slow down the economic growth.

Military Expenditure and Economic Growth: A Panel Analysis 1988-2010

This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988-2010. A major focus of the paper is to consider the possibility of non-linearity and group heterogeneity within the sample. Having estimated and appraised a full sample model, the sample is stratified based upon a range of potentially relevant factors, different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for this different subsamples are compared and conclusions drawn.

Military spending, investment and economic growth in small industrialising economies

South African Journal of …, 2002

An enduring and important debate in economics concerns the effects of military spending on economic growth. It has generated a huge literature, with a variety of results and no clear consensus. The end of the Cold War led to marked reductions in military burdens and to renewed concerns on whether this was likely to lead to a 'peace dividend' or a 'peace penalty'. This paper revisits the debate using a sample of small industrialising economies. It estimates a growth equation and an investment equation, where investment is a function of growth and military expenditure. The data is used to consider the individual economies and to provide some panel time-series results, which show some evidence of a negative impact of military spending on growth and investment.

Military spending, economic growth and investment: a disaggregated analysis by income group

Empirical Economics, 2017

Employing a panel vector autoregression (PVAR) methodology, the paper addresses the nexus between military expenditures and two key macroeconomic variables, namely growth rates and investment spending using SIPRI's new consistent time series dataset. Given data constraints, the sample chosen was a compromise between T and N for the empirical tests conducted. It consists of 65 countries and covers the period 1971-2014 that allows for a total of 2730 observations. The PVAR model is estimated for the entire sample as well as three income group sub-samples. Findings reported herein are not uniformed, and noteworthy differences between the three income groups were unearthed by the empirical tests conducted.

Military spending and economic growth: a panel data investigation

Economic change and restructuring, 2020

The present study examines the worldwide effect of military spending on economic growth for the period 1960-2017 utilizing the dynamic common correlated effects estimator that accounts for country heterogeneity and cross-sectional dependence, while it provides not only sample-average coefficients but country-specific coefficients as well. Overall, the worldwide effect of military spending on economic growth over the period 1960-2017 appears to be negative, and this originates from the cold war and early post-cold war era and is especially evident for the North Atlantic Treaty Organization countries. For the post-cold war era, a neutral effect (i.e., no statistical significance) is apparent for the majority of countries. At the country-specific level, there are some economies that consistently benefit or suffer from military spending, while the type of the individual impact for most of the countries varies over different time periods, with no clear pattern.

Military expenditure and economic growth: A survey

The Economics of Peace and Security Journal, 2013

Until recently, a long-standing, impressively large, and growing literature on the effects of military expenditure on economic growth appeared to have failed to result in a scholarly consensus. But the availability of 20 more years of data since the thawing of the cold war has helped researchers to make progress in identifying any relation of military expenditure with economic factors. The literature is complex and difficult to summarize, with studies differing in their theoretical approach, in the empirical methods used, in the coverage of countries and time periods employed, and in their quality and statistical significance. This article extends and updates an earlier survey, now covering almost 170 studies. It finds that more recent studies provide stronger evidence of a negative effect of military expenditure on economic growth.

Theoretical and Econometric Issues in Analysing the Military Expenditure-Growth Nexus

2001

This paper surveys some of the theoretical and econometric issues involved in estimating growth models that include military spending. In particular, it critically evaluates the commonly used Feder-Ram model, detailing its problems and limitations and suggesting a more acceptable theoretical approach. It also surveys the econometric issues involved in estimating these models and uses a panel of 28 countries study to evaluate the different approaches and to draw some suggestions for the development of future research.

Assessing the Effects of Military Expenditure on Growth

2010

Military spending is an expenditure by governments that has influence beyond the resources it takes up, especially when it leads to or facilitates conflicts. This chapter provides an overview of the issues involved in analysing the effects of military spending on growth. It considers the alternative general economic theories that inform the development of models to undertake empirical analyses, and estimation issues in undertaking those analyses. The Feder-Ram model, the modified Solow and the endogenous growth models, are discussed in detail, before being estimated to illustrate the issues involved in estimating the models and to compare their performance.

Military expenditure and economic development: An endogenous growth perspective

Economics of Planning, 1995

This paper attempts to analyse the interrelationships between government and military expenditure and economic growth in particular, and between security and development in general, in a new framework. It has three novel features. First, the impact of military spending (as well as any other government spending which has similar externalities) is studied in an endogenous growth framework unlike most of the previous research in the field. Second, growth, welfare and security effects are studied simultaneously. Third, simulation studies are made for specific countries to capture long-term steady state effects which are difficult to analyze in longitudinal case studies.