Operating Costs of Aging Air Force Aircraft: Adjusting for Aggregate Budget Effects

The rate at which operating costs grow as aircraft age is important for setting operating budgets and for deciding when to replace aging systems. While studies using data from the 1990's typically found 1–3 percent real rates of growth in operating costs as aircraft age, studies using data from the 2000's found greater rates, for example in the 4–6 percent range. Growth in the total U.S. Air Force budget during the 2000s appears to explain much of the higher estimated annual growth rates in operating costs per flying hour beyond the growth rate intrinsic to the aging of the fleet.     

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.     

Country Survey I–Military Spending in India 1

After a brief survey of the Indian economy, we survey the supply and demand of military expenditures in India over the last four decades. The causes of military expenditures appear to include regional rivalries and protracted conflicts, but it has proven difficult to delineate these with empirical models. The effects of military spending in India on economic growth appear to be benign, despite much speculation to the contrary. However, the opportunity costs of defence spending are shown to be considerable. We conclude with speculation about the role of debt and debt servicing in retarding future economic growth in India. We also speculate about the potential for the creation of a war economy in India.     

THE LONG‐RUN RELATIONSHIP BETWEEN DEFENCE EXPENDITURES AND GDP IN TAIWAN

Using the Solow–Swan growth model and the time‐trend included in the aggregate production function, this study applies the multivariate cointegration approach to re‐investigate the long‐run and causal relationships between defence expenditures and GDP while controlling for capital and labour input in Taiwan during the 1955–2002 period. It examines the long‐run causal relationship using the weak exogeneity test and utilizes general impulse response functions to determine whether a shock to defence expenditures affects economic growth or vice versa. Our findings provide substantive evidence in favour of the existence of a long‐run equilibrium cointegrated relationship between defence expenditures, GDP, labour and capital stock. The results of the weak exogeneity test indicate that a bi‐directional causal relationship exists in the long‐run between defence expenditures and GDP. Thus, the main policy implication that emerges from the long‐run results is that increasing defence expenditures in Taiwan is an effective means to boost overall economic performance and, with this improved economy, it should then be able to increase its defence expenditures further. Lastly, from our dynamic vector error correction model estimations, it is found that defence expenditures are a major means of adjusting for disequilibria that occur within the system.     

Life cycle costs for decision support ‐ a study of the various life cycle costs used at different levels of defence policy and management∗

Debates on many aspects of defence economics ‐ on the scale of defence expenditure, on the allocation of that expenditure to various military capabilities, and on the selection of equipment offering the best value for money ‐ are bedevilled by misunderstandings and misconceptions about the costs of defence equipment. This paper seeks to improve understanding of defence equipment costs by defining a hierarchy of defence equipment within which the direct and indirect life cycle costs of defence equipment may be allocated at different levels. Having reviewed the direct and indirect components of the life cycle cost, this paper then shows how different costing studies for different purposes require different approaches to life cycle costing, and that there is no unique life cycle cost which can be assigned to one particular item of defence equipment. There is instead a range oflife cycle costs, each of which is appropriate for a particular study, and it is important that a quoted cost of an item of defence equipment should be used only in the pertinent circumstances. The paper is written from a UK perspective and accordingly uses British nomenclature, but its principles should be relevant to defence cost studies in other nations.     

Military Debt: Perspectives from the Experience of Arab Countries

The sectoral production function model of Feder (1983) has been widely used to examine the link between defence spending and economic growth. In this paper, the model, for which too much has been claimed in some past work, is examined, and the case is made for using growth in real non‐defence output rather than growth in real aggregate output (inclusive of military spending) as the dependent variable. Attention is restricted to a small group of OECD countries for which reliable labour force and capital stock (as well as defence) data are obtainable. With non‐defence output as the dependent variable and using only high quality data, no evidence in favour of the underconsumptionist (as opposed to the defence as a burden) position is found.     

Country survey X: Defence spending in Turkey

This paper provides a country survey of the Turkish defence economy. Turkey is a member of NATO alliance and is strategically located between Europe and Middle East. Moreover, Turkey has a high defence burden and high economic growth. The first part of the survey presents a brief economic background of Turkey, its armed forces, the defence industry, its modernisation and trends in Turkish defence expenditure. The rest of the paper focuses on the relationships between defence spending and economic growth. The effect of defence spending on economic growth is econometrically estimated using a supply side model. Both externality effects and the size effect of defence spending are estimated for Turkey. The study concludes that defence expenditure stimulates economic growth while externalities from the defence sector to the rest of economy are negative for Turkey.     

Using the Feder-Ram and Military Keynesian Models to Examine the Link Between Defence Spending and Economic Growth in Sri Lanka

This study uses the Feder-Ram model in conjunction with the military Keynesian model to examine the nexus between defence spending and economic growth in Sri Lanka. We find that the Keynesian aggregate demand model is better suited to analyse the link than the Feder-Ram model for the case of Sri Lanka. Based upon our results we expect a higher economic growth rate in Sri Lanka if more public resources are diverted from the defence to civilian sectors of the economy, now that the war between the government and separatist guerrillas has come to an end. However, recent post war events cast doubt upon whether a diversion of sources from military to non-military spending will actually occur. We conclude that the sanguine predictions of our economic analysis are entirely dependent upon the political decisions of the Sri Lankan government for their realization.     

Estimating defence budget saving from disarmament: the United States’ case

Probing the technology in the production of US national defence by using a dynamic cost‐function model with adjustment costs, this paper evaluates the effect of reducing the level of national defence on the defence budget saving. Our inquiry involves estimating the defence production structure without output data for non‐market goods that are normally unavailable. Our findings include: (i) the United States behaves rationally to minimize cost in the production of national defence; (ii) the adjustment costs are larger in disarmament than in military build‐up; (iii) due to the adjustment costs peculiar to disarmament, the defence budget saving from disarmament appears small, but cutbacks allow great savings on the defence budget.     

Military Spending and Income Inequality:Evidence on Cointegration and Causality for Turkey,1963–2007

This paper investigates a series of unit root, cointegration and causality tests to ascertain the direction of causality between the growth of GNP and defence expenditure in Turkey for the years 1955–2000. The main conclusion is that there is a long‐run equilibrium relationship between GNP and defence expenditures. Furthermore, the short run causality test indicates that there is a unidirectional causality between variables, from defence expenditure to economic growth. In order to see the effect of a shock, we employed impulse response analyses. The results show that GNP decreased during the period then output finally recovered from the initial shock to defence expenditures.     

DOES DEFENCE SPENDING STIMULATE ECONOMIC GROWTH IN INDIA? A REVISIT

This study reinvestigates the effect of defence spending on economic growth using Zivot and Andrews and Lee and Strazicich, structural unit root tests and the autoregressive distributed lag bounds testing approach to cointegration in augmented version of Keynesian model for India. Study confirmed long run relationship among variables studied show that economic growth is positively affected by defence spending (also negative impact after a threshold point), investment and trade openness while negatively by interest rate. Granger causality analysis revealed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach.     

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.     

Introduction: Symposium on defence economics

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.     

Growth and Fiscal Consequences of Terrorism in Nigeria

Abstract

In spite of government counter-terrorism expenditure and efforts, the incidence of terrorism in Nigeria appears to be rising. This paper examines the growth and fiscal consequences of terrorism in Nigeria by estimating the terrorism–macroeconomy relation using different measures of terror incidence. The results show that terrorism has an economically and statistically significant negative impact on growth; although this impact is considerably small and short-lived, manifesting only after a lag of about three years. Specifically, the cost of terrorism to Nigeria, in terms of lost GDP per annum, is estimated at 0.82%. Moreover, there is evidence that terrorism leads to the reallocation of economic activity away from private investment spending to government spending; that is, terrorism crowds out investment at a higher rate than its potential to crowd in government spending. Lastly, terrorism alters the composition of government expenditure – with the defence component of government expenditure rising vis-a-vis other expenditure items. The results are robust to allowing for dynamic interactions between terrorism and macroeconomic aggregates.     

Defence expenditures and economic growth: The externality effect

In a series of articles published in the Fall 1990 issue of Defence Economics Alexander (1990), Atesoglu and Mueller (1990) and Huang and Mintz (1990) have all specified and empirically estimated defence‐growth models based on a neoclassical production function. We now isolate the externality component in our model, re‐estimate its coefficients using data on the U.S. economy 1952–88 and compare specifications and results with Atesoglu and Mueller (1990) and Alexander (1990).     

基于高原发动机应用的富氧膜组件操作性能研究

发动机富氧进气燃烧对于高原车辆节能减排具有重要意义,膜法富氧是发动机上应用富氧装置的最佳方式。建立了富氧膜组件评定装置,分析了压力方式下压比、进气量和回收率对膜组件性能的影响,确定了压力方式下富氧膜组件的最佳操作条件,比较了不同应用形式下膜组件性能和功率消耗。试验结果表明：压差是影响膜组件透气量的主要因素,随着渗透端真空度的增加,单位压差产生氧流量的效率提高,增加渗透端真空度可显著提高渗透绝对氧流量。混合方式是膜组件在发动机上应用的最佳形式。     

Specialization in defence forces

The choice between balanced and specialized defence forces depends on the technology of defence output (e.g. whether a force scope multiplier is present), the existence of scope and scale economies, the platform customization costs and, of course, the level of defence budgets. Minimum force element levels (thresholds), and scale economies facilitate specialization as opposed to scope economies (e.g. platform‐sharing), scale diseconomies and the force scope multiplier (e.g. defence weakest‐link technology). When a balanced force is not optimal, the option value of a non‐optimally maintained force element must also include the opportunity cost arising from suboptimal force elements. Shrinking defence budgets may produce two surprising phenomena. If some force elements are shut down as a result of thresholds, the surviving ones may increase in platform numbers as well as enjoying closer‐to‐most‐desirable platforms. Furthermore, if heritage force elements are shut down within the budget contraction environment, overall defence capability might rise.     

Use it or lose it: On the incentives to spend annual defence operating budgets

In most western countries, there is a strong incentive for defence department budget-holders to expend all of the funds they are authorized to spend in a fiscal year. In this paper, we question whether this emphasis makes sense. We develop a model of a defence department’s operating expenditure assuming a fixed level of funding for a year and uncertain costs. The results of the model suggest that the incentive for departmental managers to expend all authorized funds is inefficient. We explore the implications of the model for the Department of National Defence (DND) in Canada in light of the recent criticism of DND lapsed funding by the Auditor-General of Canada.     

Panel Causality Analysis Between Defence Expenditure and Economic Growth in Developed Countries

There is much controversy in the literature over whether military expenditures have a positive, negative or no relation impact on economic growth. The aim of this paper is to determine the relationship between GDP and defence expenditure. The study analyses GDP and defence expenditures of the developed countries with cross-sectional ADF and SURADF unit root tests using annual data for the years 1980–2007. We conclude that in the long term, according to the Pedroni cointegration test, there exists a relationship between defence expenditure and economic growth. Furthermore, by utilizing the Granger causality test, we find that defence expenditure is a factor in economic growth. In other words, our study validates the hypothesis that defence spending by economically developed countries positively contributes to their economics.     

Change as a cost driver in defence procurement

This paper discusses change transactions that occur in connection with the procurement of defence systems. The bases for the reasoning are the ideas of Miller and Vollman (1985 Miller JG Vollman TE (1985) The hidden factory – cutting the explosive growth of overhead costs requires mastery of more than just what happens on the shop floor Harvard Business Review Sept–Oct 142 150  [Google Scholar]) and Eppinger (2001 Eppinger DE (2001) Innovation at the speed of information Harvard Business Review January 149 158  [Google Scholar]). These researchers argue that unplanned flows of information lead to change transactions, causing significant overhead costs. According to this paper, change transactions in defence procurement could be caused by (a) the changes in technology taking place during the long lifetime of a defence system and (b) the structure and contents of the agreements between the defence agent (the procurer) and the defence industry (the supplier).