Does military spending promote social welfare? A comparative analysis of the BRICS and G7 countries

Whether military spending is capable of promoting social welfare is currently a controversial issue. The aim of this paper is to investigate how military spending affects the input and output of social welfare (i.e. social welfare expenditures and social welfare index). A panel cointegration analysis and an impulse response function are conducted with multi-country panel data, over two time periods, 1998–2011 and 1993–2007. In addition, to extend a comparative analysis over different economies, BRICS (i.e. Brazil, Russia, India, China, South Africa) and G7 (i.e. the US, Japan, Germany, the UK, France, Italy, Canada) countries are selected as representatives of emerging economies and developed countries, respectively. The empirical results show that military spending enhances social welfare expenditures in developed countries, while the effect is ambiguous in emerging economies. Also, military spending is capable of promoting the social welfare index based on the FMOLS estimation. The comparative analyses indicate that unlike in the G7, the effect of the growth of military spending on the growth of social welfare expenditures is negative and shorter in the BRICS.     

Military spending and budget deficits: the impact of US military spending on public debt in Europe (1988–2013)

The aim of this paper is to study the relationship between military spending and sovereign debt in a panel of 13 European countries. In particular, under the assumption of the interdependence of military spending between US and European countries, we analyse whether US military spending affected European sovereign debt in the period 1988–2013. The empirical estimation is based on different steps: (i) a unit root test; (ii) an Arellano–Bond panel estimation and a linear fixed effect model; and (iii) a FMOLS estimation to highlight the long run relationship between debt and relevant variables. General results highlight that debt burden of European countries is: (1) positively associated with US military burden and (2) negatively associated with average military burden of other European countries.     

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.     

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 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.     

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.     

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.     

A DYNAMIC PANEL DATA MODEL FOR ANALYZING THE RELATIONSHIP BETWEEN MILITARY EXPENDITURE AND GOVERNMENT DEBT IN THE EU

This paper examines the impact of military spending on general government debt in the enlarged European Union (EU) countries. For this purpose, we use panel data analysis and provide estimates from a dynamic Generalized Method of Moments (GMM) panel model. The dynamics are found to be important and the results suggest that military expenditures do have a large positive impact on the share of general government debt in the EU.     

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.     

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.     

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.     

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.     

Military Spending,Conflict and External Debt in Sub-Saharan Africa

The damaging economic effects of the debt crises on Africa in the late 1980s encouraged considerable research on the determinants of external debt in developing economies. Although sub-Saharan Africa's (SSA) debt was cut by two-thirds by 2008, through two debt relief programmes, debt in the region has since been rising at an increasingly rapid pace. This study provides an empirical analysis of the determinants of external debt in SSA over the period 1960–2016, using dynamic panel methods. It also considers two potentially important factors that have received relatively little attention. One is military spending, rarely considered, despite a number of well-publicised scandals over the procurement of unnecessary and expensive high-tech weapons systems. A second, is the possibility that the countries studied have been involved in conflict. The empirical results point to a positive impact of military spending on external debt, but with some evidence of heterogeneity across the countries. Furthermore, findings indicate that the positive effect of military expenditure on debt becomes more marked in countries that have been affected by conflict. These results imply that policies to improve security and reduce military spending could be beneficial in reducing external debt and, potentially, improving economic performance in the region.     

Defence spending and economic growth: A causal analysis for Greece and Turkey*

There are a number of studies which consider the relation between military spending and economic growth using Granger causality techniques rather than a well‐defined economic model. Some have used samples of groups of countries, finding no consistent results. Others have focused on case studies of individual countries, which has the advantage of the researchers bringing to bear much more data than the cross country samples and a greater knowledge of the structure of the economy and the budget. This paper adds to the literature by providing an analysis of two countries, Greece and Turkey, which are particularly interesting case studies given their high military burdens, the poor relations between the two and the resulting arms race in the area. In addition to analysing the data using standard “pre‐cointegration” Granger causality techniques, this paper employs modern vector autoregressive (VAR) methodology that utilises cointegration via Granger's representation theorem. The standard Granger causality tests suggest a positive effect of changing military burden on growth for Greece, but this is not sustained when the cointegration between output and military burden is taken into account. The only evidence of significant Granger causality is a negative impact of military burden on growth in Turkey.     

The causal nexus between military spending and unemployment in the G7: a bootstrap panel causality test

We revisit the causal relationship between military spending and unemployment in the G7 countries applying a bootstrap panel causality analysis that accounts for both cross-sectional dependence and for heterogeneity across countries. Using per capita real GDP as a controlled variable, we found a unidirectional causality running from military spending to unemployment for Canada, Japan, and the US, one-way causality running from unemployment to military spending for France and Germany, and bidirectional causality for Italy and the UK. The empirical evidence does not seem to provide consistent results regarding the causal relationship between military spending and unemployment in G7 countries.     

The demand for military spending in the peripheral economies of Europe

Research on the factors that determine the level of military expenditure or military burden in countries, suggest that the dynamics of the determinants of military spending will be best understood by case studies of individual countries and studies of groups of relatively homogeneous countries. This paper provides a comparative analysis of three of the EU's peripheral economies - Greece, Portugal and Spain. A simple model based on a general theory of the demand for military spending provides the basis for an investigation of the relative importance of strategic and other social and economic factors for the three countries.     

Debt Burden,Military Spending And Growth In Sub-Saharan Africa: A Dynamic Panel Data Analysis

This article empirically explores the relationship between military expenditure, external debts and economic performance in the economies of sub-Saharan Africa using a sample of 25 countries from 1988–2007. In investigating the defence–external debt nexus, we employ three advanced panel techniques of fully modified OLS (FMOLS), Dynamic OLS (DOLS) and dynamic fixed effect (DFE) to estimate our model. We observe that military expenditure has a positive and significant impact on external debt in African countries. Real GDP affects the total debt stock of African countries with a negative relationship. Our empirical results based on long-run elasticities show that a 1% rise in national output leads to a decline in external debt by 1.52%, on average. Policy-wise, the study suggests that African countries need to strengthen areas of fiscal responsibility and pursue models that encourage rational spending, particularly reductions in military expenditure.     

Military spending and growth: a small open economy stochastic growth model

The paper analyzes the effects of military spending on economic growth in a small open stochastic endogenous growth model involving the supply-side and demand-side effects produced by military spending. We show that a rise in the military spending affects economic growth through four channels, including the crowding-out effect, the spin-off effect, the resource mobilization effect, and the portfolio effect. The net effect which depends on these four channels is ambiguous. Hence, we demonstrate that there exists an optimal defense burden that maximizes the economic growth rate.