Military Spending and Growth: The Role of Institutions

Recent literature on whether military spending affects economic growth argues that the relationship may be a conditional one. We add to this literature by considering the role that ‘good institutions’ play in the effect of military spending on growth. Using data from a sample of over 100 countries from 1988 to 2010, our analysis suggests that the effect of military spending on growth is generally negative or zero at best, and this effect is mitigated in the presence of good economic and political institutions.     

Defence spending and economic growth in South Africa: A supply and demand model*

This paper provides a contribution to the growing corpus of knowledge and understanding of the interaction between economic growth and defence spending in South Africa by specifying a Keynesian simultaneous equation model and estimating the system for the period 1961 to 1997. The model contains a growth equation, a savings equation, a trade balance equation and a military burden equation and when estimated by single equation and systems estimation methods is relatively well specified. There is evidence of an overall negative effect of military spending on the economy over this period, though the significance of individual coefficients is low. There is certainly no evidence of any positive impact, suggesting that cuts in military spending do present an opportunity for improved macroeconomic performance.     

Does military expenditure increase external debt? Evidence from Asia

This article empirically explores the effect of military spending on external debt, using a sample of ten Asian countries over the years from 1990 to 2011. The Hausman’s test suggests that the random-effects model is preferable; however, both random-effects and fixed-effects models are used in this research. The empirical results show that the effect of military spending on external debt is positive, while the effects of foreign exchange reserves and of economic growth on external debt are negative. For developing countries caught in security dilemma, military expenditure often requires an increase in external debt, which may affect economic development negatively.     

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 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.     

Military Expenditure,Endogeneity and Economic Growth

Abstract

While not always a concern for the general economic growth literature, the debate over the effects of military spending on growth continues to develop, with no consensus, but a deepening understanding of the limitations of previous work. One important issue that has not been adequately dealt with is the endogeneity of military spending in the growth equation, mainly because of the difficulty of finding any variables that would make adequate instruments. This paper considers this issue, using an endogenous growth model estimated on a large sample of 109 non-high-income countries for the period 1998–2012. The empirical analysis is framed within an instrumental variable setting that exploits the increase in military spending that occurs when unrest in a country escalates to turmoil. The estimation results show that endogeneity arising from reverse causality is a crucial issue, with the instrumental variable estimates providing a larger significant negative effect of military spending on growth than OLS would. This result is found to be robust to different sources of heterogeneity and different time periods.     

MILITARY SPENDING AND ECONOMIC GROWTH IN SRI LANKA: A TIME SERIES ANALYSIS

In this paper, we employ a VAR analysis to examine the nexus between military spending and economic growth in Sri Lanka which, due to the civil war there, has witnessed a significant increase in military spending over the last three decades while also recording healthy economic growth. The study finds that, compared with non‐military spending, military spending exerts only a minimal positive impact on real GDP. Over a 10‐year period, a 1% increase in non‐military spending increases GDP by 1.6%. In contrast, military spending only increases GDP by 0.05%, suggesting that the economic benefits for Sri Lanka from a sustained peace may be considerable.     

The impact of arms production on the South African manufacturing industry

The 1977 UN arms embargo was one of the main factors which led South Africa to establish a largely self sufficient import‐substituting arms industry capable of meeting the apartheid state's demand for sophisticated weaponry. While macroeconomic studies suggest that high military spending had a damaging effect on economic growth, no studies have investigated the disaggregated impact of military expenditure on industrial development. This paper applies panel data methods to the Industrial Development Corporation's Sectoral Database in order to analyse the level effects of military spending.     

Does Military Spending Explode External Debt in Pakistan?

This paper investigates the effect of military spending on external debt in case of Pakistan for the period of 1973–2009. For this purpose, the autoregressive distributed lag bounds testing approach to cointegration is used to examine cointegration among the variables. The ADF, P-P, and ADF-GLS unit root tests are applied to test the integrating order of the variables. The Ordinary Least Square (OLS) and error correction method regressions are used to investigate the marginal impact of military spending on external debt in the long and short run. Our findings indicate the existence of cointegration that confirms the presence of a long-run relationship among military spending, external debt, economic growth, and investment. Further, our results reveal that a rise in military spending increases the stock of external debt; an increase in investment also increases external debt; however, there is an inverse effect of economic growth on external debt. An implication of the findings reported herein is that there is a need to formulate a comprehensive economic policy for curtailing external debt in case of Pakistan.     

Military spending and economic growth in South Africa

This paper undertakes an empirical analysis of the economic effects of military spending on the South African economy. It estimates a neo‐classical model common in the literature at the level of the macroeconomy and at the level of the manufacturing sector. An attempt is made to improve upon the model by allowing the data to determine the dynamic structure of the model through an ARDL procedure. No significant impact of military spending is found in aggregate, but there is a significant negative impact for the manufacturing sector. This suggests that the cuts in domestic military procurement that have occurred since 1989 could lead to improved economic performance in South Africa through their impact on the manufacturing sector.     

Growth recovery after civil conflict: a fractional integration approach

Using recent econometric techniques based on fractional integration, we find that developing countries recover their economic growth faster than developed countries in response to a shock. Following this methodology, we find that longer civil conflicts are associated with a faster recovery process. We further investigate this issue by exploring correlations with components of GDP, military spending, institutions and aid and find heterogeneous effects of these channels by duration of conflict. Higher government spending is correlated with faster recoveries post longer conflicts, and higher consumption spending is linked to faster recoveries following shorter conflicts. Military spending appears to be driving the government expenditure that makes countries recover from longer conflicts. More democratic institutions are associated with faster recoveries post short wars but slower recoveries following long wars.     

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.     

Military Expenditure,Economic Growth and Heterogeneity

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 group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors, and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.     

Externalities in Military Spending and Growth: The Role of Natural Resources as a Channel through Conflict

This investigation re-examines the potential sources of positive externalities for the relationship between military spending and economic growth using recent advances in panel estimation methods and a large data-set on military expenditure. The investigation provides a new analysis on the relationship between conflict, corruption, natural resources and military expenditure and their direct and indirect effects on economic growth. The analysis finds that the impact of military expenditure on growth is generally negative as in the literature, but that it is not significantly detrimental for countries facing higher internal threats and for countries with large natural resource wealth once corruption levels are accounted for.     

Military Spending and Economic Growth in the Middle East Countries: Bootstrap Panel Causality Test

This study revisits the causal relationship between military spending and economic growth in 10 Middle East countries via a panel causality analysis that accounts for cross-sectional dependence and heterogeneity across countries. Our results indicate unidirectional causality from military spending to growth for Turkey; one-way causality from economic growth to military spending for Egypt, Kuwait, Lebanon, and Syria; bidirectional causality for Israel; and no causality in either direction for Jordan, Oman, and Saudi Arabia. The empirical evidence does not provide consistent results regarding the causal relationship between defense expenditure and economic growth in these countries.     

From first to third stream activities in higher education: the case of the Spanish Defence University centre

The paper adds to the debate on the relationship between military spending and economic growth by analysing the contribution of a military university centre to regional economic development. It goes beyond traditional economic impact studies by including research related effects and integrating “third stream” activities. Conceptualization and categorization are carried out to thoroughly analyse the different dimensions of knowledge and “third stream” actions. The analysis is performed from its settlement and during its first 5 years of existence which allows showing how the strategy of community engagement is developed. The conclusion suggests that, as traditional military roles extend, and military education institutions become higher education institutions, a comprehensive evaluation should be taken into account to enrich the public debate on government spending.     

Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity

This study revisits the causal linkages between military spending and economic growth in China and G7 countries (i.e. Canada, France, Germany, Italy, Japan, the UK, and the USA) by focusing country-specific analysis for the period 1988–2010. The panel causality analysis, which accounts for both cross-country dependency and heterogeneity across countries, is employed in this study. Our results find evidence of the neutrality hypothesis for Italy, France, and Germany, the military spending–growth detriment hypothesis for both Canada and the UK, and one-way Granger causality running from economic growth to military spending for China. Furthermore, we find a feedback between military spending and economic growth in both Japan and the USA. Thus, our results do not support that one size fits all.     

Military Spending and Economic Growth in South Asia: A Panel Data Analysis

Despite the large number and variety of studies addressing the relationship between military spending and economic growth, a consensus regarding the exact nature of any relationship between the two has proven elusive. This study uses a panel co-integration approach to examine the relationship between military spending and economic growth in the five South Asian countries of India, Pakistan, Nepal, Sri Lanka and Bangladesh over the period of 1988–2007. It finds that a 1% increase in military spending increases real GDP by only 0.04%, suggesting that the substantial amount of public expenditure that is currently directed towards military purposes in these countries has a negligible impact upon economic growth.     

Military expenditure and economic development in China: an empirical inquiry

Increases in military spending have a big impact on the socioeconomic conditions in any country. However, there is no consensus as to whether the rising military expenditure is beneficial or detrimental to economic growth. The present study chose China as a case study to empirically examine a complex relationship between military expenditure and economic development. The findings from the Johansen cointegration test indicated that there existed a long-run relationship between China’s military spending and economic growth. Furthermore, the Granger causality test detected a unidirectional causality from economic development to military expenditure. These results were further confirmed by the findings from the impulse response function. This means that China represents an example of a developing economy where the size of military expenditure expands in the process of economic transformation.     

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.