MILITARY EXPENDITURE AND UNEMPLOYMENT RATES: GRANGER CAUSALITY TESTS USING GLOBAL PANEL DATA

This paper investigates the empirical relationships between military expenditure and unemployment rates. A set of global panel data on 46 countries is utilized, and a panel data version of the Granger causality test is applied. The results indicate that there is little evidence of the causality running from unemployment to military expenditure regardless of how we measure military spending and determine group countries. In contrast, the causality running from military expenditure to unemployment receives empirical support if military expenditure is measured in terms of its share of GDP and if data are taken from middle‐ and low‐income countries or non‐OECD countries.     

What Goes Up Must Come Down: Military Expenditure and Civil Wars

Abstract

This paper examines the impact of civil war on military expenditure. We employ two measures of military expenditure: the share of military expenditure in general government expenditure and the logarithm of military expenditures. We would reasonably expect a priori that military expenditure as a share of general government expenditure increases during a civil war and that such increases would taper off over the duration of a civil war. We also explore whether the termination of a civil war induces a decline in the share of military expenditure as a share of the general government expenditure in the short-run. We find evidence the of share of military expenditure increases during a civil war and falls in the year succeeding the end of a civil war, and, in particular, if a war ends in a peace treaty. The level of military expenditures, however, rises during civil wars and does not appear to decline in the short-term after the end of a civil war.     

Military expenditure and employment in South Africa*

Previous research into the impact of military expenditure on employment finds considerable variation across countries. This paper adds to the debate by examining the long run relationship between military burden and manufacturing employment in South Africa. Such an analysis provides an opportunity to test for crowding‐out effects and the impact of the marked decline in military spending on the South African economy. The paper finds evidence supporting the view that military expenditure will have a detrimental impact on long term manufacturing employment, adversely affecting industrial structure and efficiency.     

MILITARY EXPENDITURE AND ECONOMIC GROWTH

This paper tests the relationship between military expenditure and economic growth by including the impact of the share of military and civilian components of government expenditure in an economic growth model with endogenous technology. In this framework, we empirically consider the hypothesis of a non‐linear effect of military expenditure on economic growth. Differences between the costs and benefits of the defence sector has traditionally explained the non‐linear relationship suggesting that shocks to insecurity may also be a source of non‐linearity as they determine a re‐allocative effect within government expenditure. While parametric partial correlations are in line with empirical findings, the robustness of estimations is tested by using a non‐parametric approach. The negative relationship between military expenditure and growth in countries with high levels of military burden predicted by theory becomes significant only after including a proxy for re‐allocative effects in the growth equation.     

Defense Spending and Unemployment in France

France has received little attention in the literature of defense economics, despite some outstanding features of the country’s situation. This study attempts to partially fill this gap with new empirical evidence which evaluates the influence of military expenditure on the unemployment rate between 1975 and 2008. Our estimation is based on the ARDL approach to cointegration. The results reveal that both defense and non-defense spending exert a negative influence on unemployment but that defense spending has a higher negative impact.     

MILITARY EXPENDITURE AND ECONOMIC GROWTH IN MIDDLE EASTERN COUNTRIES: A DYNAMIC PANEL DATA ANALYSIS

Defence expenditures have both costs and benefits to the economy. The costs of defence expenditures are mainly emphasized as opportunity costs. On the other hand, defence spending may have growth‐promoting potential benefits: a rise in defence spending may result in a higher aggregate demand, production and employment. This paper examines empirically the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time‐period 1989–1999. The relationship between military expenditure and economic growth is investigated by using cross‐section and dynamic panel estimation techniques. Empirical analysis indicates that military expenditure enhances economic growth in the Middle Eastern countries and Turkey as a whole.     

THE RELATIONSHIP BETWEEN EXTERNAL DEBT,DEFENCE EXPENDITURES AND GNP REVISITED: THE CASE OF TURKEY

This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960–1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.     

MODELS OF MILITARY EXPENDITURE AND GROWTH: A CRITICAL REVIEW

This paper reviews some of the theoretical and econometric issues involved in estimating growth models that include military spending. While the mainstream growth literature has not found military expenditure to be a significant determinant of growth, much of the defence economics literature has found significant effects. The paper argues that this is largely the product of the particular specification, the Feder–Ram model, that has been used in the defence economics literature but not in the mainstream literature. The paper critically evaluates this model, detailing its problems and limitations and suggests that it should be avoided. It also critically evaluates two alternative theoretical approaches, the Augmented Solow and the Barro models, suggesting that they provide a more promising avenue for future research. It concludes with some general comments about modelling the links between military expenditure and growth.     

Military Expenditures,Income Inequality,Welfare and Political Regimes: A Dynamic Panel Data Analysis

The goal of this paper is to investigate the relationship between type of welfare regimes and military expenditures. There is a sizeable empirical literature on the development of the welfare state and on the typology of the welfare regimes. There appear to be, however, no empirical studies that examine welfare regimes with special attention to military spending. This study aims at providing a comprehensive analysis on the topic by considering several different welfare regime typologies. To do so, we use dynamic panel data analysis for 37 countries for the period of 1988–2003 by considering a wide range of control variables such as inequality measures, number of terrorist events, and size of the armed forces. We also replicate the same analyses for the political regimes. Our findings, in line with the literature, show that there is a positive relationship between income inequality and share of military expenditures in the central government budget, and that the number of terrorist events is a significant factor that affects both the level of military expenditure and inequality. Also, the paper reveals a significant negative relationship between social democratic welfare regimes and military expenditures.     

MODELLING THE RELATIONSHIP BETWEEN DEFENSE SPENDING AND ECONOMIC GROWTH FOR THE FIJI ISLANDS

The goal of this paper is to examine the nexus between GDP and military expenditure. We model this relationship within a multivariate framework by including exports in the model. We use the recently developed bounds testing approach to cointegration and find that there is a long run relationship among the variables when GDP is the endogenous variable. Normalizing on GDP and using four different estimators, we find that in the long run both military expenditure and exports have a positive impact on GDP. Finally, using the Granger causality test, we find that there is evidence for military expenditure Granger causing exports and exports Granger causing GDP, implying that military expenditure indirectly Granger causes GDP in the short run. In the long run, we find that both military expenditure and exports Granger cause GDP for Fiji. Our findings are consistent with the Keynesian school of thought, leading us to derive some policy implications.     

Factors influencing the modernization of military-investment economic appraisal systems

Budgetary restrictions resulting from the present international economic crisis have tightened the need to improve efficiency in defense spending, leading to the armed forces having to undertake their duties with fewer resources. Previous reports on the subject have looked into the determining factors and effects of military spending but very few studies have analyzed the determinants for the modernization of the methodology for assessing efficiency. Thus, using a multiple regression statistical model, we have analyzed the appraisal systems in place in 28 countries to identify factors that influence the development of economic assessment of military expenditure. Our findings have revealed three factors that may favor the improvement of appraisal systems with regard to military expenditure: the quality of governance, size of the armed forces, and unemployment levels.     

The Economic Effect of Military Facility Contraction: A Naval Case Study

The global financial turmoil of 2008 has resulted in the curtailment of military expenditure in most western countries. At a sub-regional-level reductions in the level of activity at a major military facility can have significant economic impact. In the light of this, the paper has two objectives: to analyse the impact of the decision to terminate naval shipbuilding at the United Kingdom’s Portsmouth Naval Base; and, for illustrative purposes, to examine the possible economic consequences of further contraction at the facility. In pursuit of these aims, it is necessary to establish the output, income and employment generated by the base using a bespoke input–output model. The methodology employed can, with appropriate adjustments, be utilised in other military or civilian contexts.     

The impact of military spending cutbacks on economic activity in an incentive‐wage two‐sector aggregative economy∗

We examine the theoretical outcomes of disarmament on economic activity in a two‐sector model of endogenous equilibrium unemployment rate. Three main shocks are analyzed: Exogenous cutbacks in military spending on the capital good and employment, and a reduction in public sector debt. The first shock is contractionary for equilibrium employment if the capital‐goods producing sector is relatively labour‐intensive but expansionary under the alternative factor intensity assumption. The second shock is contractionary for employment under either relative factor intensity assumption. If Ricardian equivalence fails, a reduction in public sector debt is likely to expand long‐term employment (JEL E24).     

Military expenditures,economic growth and spatial spillovers

The relationship between economic growth and military expenditure has been the subject of a large literature in defence economics. This study analyses the influence of military expenditures on economic growth in a global perspective for the time period 2000–2010 taking spatial dimension into account. The augmented Solow model is employed to investigate the defence-growth nexus using the cross-sectional data relating to 128 countries. Following a traditional regression analysis, spatial variations in the relationships are examined utilizing different spatial econometric specifications estimated by maximum likelihood. The regressions are compared with each other via likelihood ratio tests, and the spatial Durbin model is found to be the most appropriate one suggesting that the typical least-squares model is misspecified. Empirical evidence indicates that military expenditure has a positive effect on economic growth with a significant spatial dependence for the time period under consideration.     

The effects of local elections on national military spending: A cross-country study

In this paper, we study the domestic political determinants of military spending. Our conceptual framework suggests that power distribution over local and central governments influences the government provision of national public goods, in our context, military expenditure. Drawing on a large cross-country panel, we demonstrate that having local elections will decrease a country’s military expenditure markedly, controlling for other political and economic variables. According to our preferred estimates, a country’s military expenditure is on average 20% lower if its state government officials are locally elected, which is consistent with our theoretical prediction.     

Defense–Growth Causality: Considerations of Regime-Switching and Time- and Country-Varying Effects

This paper develops a panel smooth transition vector autoregressive model to investigate the economic growth–defense causality. This model simultaneously resolves the estimation problems of endogeneity, heterogeneity, and nonlinearity. Empirical results support that the causality is bidirectional, nonlinear, time- and country-varying. Economic growth has a negative impact on military spending and vice versa. The larger the HDI, the smaller the negative causality. Evidently, the increase in the level of country development can reduce the negative impact of military outlays on economic growth. Reducing the ratio of military spending to GDP is beneficial for countries with low HDI scores; however, moderately increasing the share of military expenditure is favorable for countries with extremely high HDI scores. Policy authority needs to set optimal education, health, and economic development shares of GDP for purchasing a maximum economic growth rate.     

ANALYSING DEFENCE DEPENDENCY: THE IMPACT OF THE ROYAL NAVY ON A SUB‐REGIONAL ECONOMY

This paper provides a methodology for estimating the economic impact of defence spending at a sub‐regional level. It does so by calculating the income and employment generated by Britain’s Royal Navy and associated defence activities in the City of Portsmouth and its surrounding area, during the financial year 2003–2004. In an era of military consolidation, the paper offers an insight into the multifaceted impact of defence‐related expenditure. Hence, it presents a generic framework that could prove useful to other researchers when seeking to measure the sub‐regional impact of naval, airforce and army facilities in other national contexts.     

Domestic political and external security determinants of the demand for greek military expenditure

By European Union and NATO standards, Greece consistently allocates substantial human and material resources to defence. The Greek defence burden (i.e. military expenditure as a share of GDP) has invariably been appreciably higher than the EU and NATO averages. The paper applies an autoregressive distributed lag model (ARDL) to present cointegrated estimates of the demand function for Greek military expenditure, in which domestic political factors and external security determinants are incorporated. Our empirical findings suggest that Greek defence spending over the period 1960-1998 has been influenced by both external security concerns, namely Turkey, as well as changes in the domestic political scene.     

A Nonlinear Model of Military Expenditure Convergence: Evidence From Estar Nonlinear Unit Root Test

The paper builds a model to empirically test military expenditure convergence in a nonlinear set up. We assert that country A chooses a military strategy of catching up with the military expenditure of its rivals, subject to public spending constraints on public investments, including health and education, leading to decrease in long-term economic welfare. This implies nonlinear convergence path: only when the military expenditure gap between countries reaches the threshold level, will it provide incentives to catch up with rival’s military expenditures. We test this nonlinear catching up hypothesis for 37 countries spanning from 1988 to 2012. Results from individual nonlinear cross-sectionally augmented Dickey–Fuller (NCADF) regression indicate that 53% of countries converge to world’s average military expenditure: where 39% of countries converge to Germany; 33% of countries converge to China; 22% of countries converge to the USA, and 11% of countries converge to Russia. Interestingly, USA does not exhibit nonlinear military expenditure convergence toward world’s average level. For panel NCADF regression, the result suggests that on average, there is evidence for countries converging to USA’s military expenditure at 10% significance level. For the convergence to the world’s average, the statistical significance is at the 1% significance level.     

Military expenditure and economic growth in Middle Eastern countries and Turkey: a non-linear panel data approach

The economic growth effects of military expenditure have been the subject of a large literature in defence economics. Theories on the economic impacts of military expenditure greatly differ and include arguments that they either enhance economic growth or crowd out productive investments. Empirical literature on defence expenditure and economic growth nexus generally employs linear specifications to investigate the impact of defence expenditures on economic growth. Although it is now well established that many economic variables may have a non-linear data-generating mechanism, it seems that this reality has long been neglected in empirical work on defence–growth nexus. This paper attempts to fill this gap by employing non-linear panel data models to examine the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time period 1988–2012. Results show that the effect of military expenditure on economic growth is nonlinear such that the state of the economy actually determines the effect of the former on the latter. This is important not only in showing asymmetric relationship between these variables but also in revealing the reasons of mixed results of earlier literature.