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 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.     

Rent seeking and defence expenditure

A plethora of arguments from the ‘public choice school’ suggest that public goods are ‘under‐supplied’ by comparison with public sector provision of more private goods. The implication is that rent seeking by the ‘military‐industrial complex’ serves, in some measure, to offset potential allocative inefficiency. In this paper a comparison of rent seeking by producers of public goods and producers of private goods identifies a bias that favours public good supply. The bias results from the different way in which collective demand for public goods and for private goods is expressed. The prospect of larger rents to the ‘military‐industrial complex’ implies greater rent‐seeking expenditures in this sector. The extent to which public goods (and, in particular, defence) are ‘under supplied’ is much exaggerated.     

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.     

Resource rents,institutions, and violent civil conflicts

Natural resources have been blamed for inducing slow growth and sparking civil conflicts and violence. This paper first develops a model to account for the hazard of armed civil conflicts as a manifestation of the natural resource curse, which is mediated by the quality of both economic and political institutions. We then use recently published data on institutional quality and natural resource rents to measure the potential impact of the resource curse on violent civil conflicts using a panel of data for over 100 countries in the period 1970–2010. Our model explicitly accounts for the role of good economic and political institutions in deterring the recourse to violence as well as the extent to which they might weaken the resource rents effect.     

Measuring hard power: China’s economic growth and military capacity

China’s rapid economic growth is facilitating massive increases in its military spending and causing increased security concerns in Asia and the Western Pacific. But there is uncertainty over how large China’s military spending is relative to other countries, or how fast it is growing in real terms. We address this issue by deriving a relative military cost price index based on the relative unit costs of inputs. We find that China’s real military spending is much larger than suggested by exchange rate comparisons, and even larger than standard purchasing power parity comparisons. We also find, however, that the real growth of China’s military spending has been smaller than conventionally thought. This is due to rapidly growing wages in China and the large share of personnel in China’s military budget.     

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.     

A Cursed and Fragmented Island: History and Conflict Analysis in Bougainville,Papua New Guinea

This paper is a review piece examining the main factors responsible for the civil war, lasting from 1988 to 1998, on Bougainville island, an autonomous region in Papua New Guinea. History, economy, and social aspects of the island – especially traditional society features, mining activities, the effects of colonization and industrialization – are highlighted. The aim of the article is to identify which factors best explain the outbreak of the conflict. The main assumption is that no single factor can explain the civil war, as these elements require a comprehensive analysis. The ‘resource curse’ theory, i.e. the presence of natural resources leading to economic failure, and the existence of ethnic cleavages, are proposed as explanations, although further factors must also taken into account. Finally, the analysis helps to contextualize the unfolding events in Bougainville and its path to democratization.     

The Demand for Military Spending in Egypt

Egypt plays a pivotal role in the security of the Middle East as the doorway to Europe and its military expenditure reflects its involvement in the machinations of such an unstable region, showing considerable variation over the last 40?years. These characteristics make it a particularly interesting case study of the determinants of military spending. This paper specifies and estimates an econometric model of the Egyptian demand for military spending, taking into account important strategic and political factors. Both economic and strategic factors are found to play a role in determining military burden/spending, with clear positive effects of lagged military burden, suggesting some sort of institutional inertia, plus negative output and net exports effects. The strategic effect as a result of the impact of Israel’s military burden is mostly positive and significant, though its impact is reduced when the impact of important strategic events are taken into account. The military spending of Egypt’s allies Jordan and Syria generally seems to have had no effect on Egypt’s spending. These results are consistent over a range of econometric techniques.     

Civil Wars,International Conflicts and Other Determinants of Paramilitary Strength in Sub-Saharan Africa

Previous research on African military spending suggests the existence of civil strife as the best predictor of high levels of military spending. However, little is known about why some African nations maintain strong ‘auxiliary’ or paramilitary organizations while others do not. This study finds that the presence of civil or interstate war does not strengthen reserve or irregular forces. Civilian governments promote strong paramilitary organizations to counter any threat the regular military might pose to regime survivability as a form of clientelist politics.     

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.     

Country survey IV: Pakistan

This paper examines the role of the military in Pakistan, particularly in regard to civil‐military relations and defence industrialisation. Pakistan's military expenditure is relatively high, but apart from investment multipliers, little of this spending filters through to the civil sector. Pakistan's defence‐industrial strategy centres on rebuild and Chinese technological collaboration. However, while this ‘capital‐saving’ approach has merit, the strategy has thus far failed to stimulate broader civil development linkages. A conclusion of this paper is that Pakistan is failing to maximise the strategic dual‐use benefits of integrating civil‐military activity.     

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.     

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.     

The Demand for Military Expenditure in Europe: The Role of Fiscal Space in the Context of a Resurgent Russia

A variant of established work on the demand for military expenditure is developed based on a practical concept of fiscal space from the perspective of short-term government choices concerning public expenditures. A new indicator, referred to as fiscal capacity, is defined and used as a candidate explanatory variable in an empirical model of European defence spending over the 2007–2016 period. Fiscal capacity is found to outperform simpler measurements of economic conditions, notably GDP growth forecasts, in explaining changes in defence spending efforts as a share of GDP. Regarding security environment variables, the results suggest that Russia has recently come to be seen as a potential military threat by European nations, leading to defence spending increases, the more so the shorter the distance to stationed or deployed Russian forces, and particularly so by those European nations that have a land border with Russia. A prospective exercise is then carried out in order to assess the capacity of EU member states that are also members of NATO to reach NATO’s 2% goal for defence spending over a mid-term horizon.     

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.     

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.     

Guns for Butter? Empirical Evidence from China

Abstract

This study examines the causal nexus between defence spending and education expenditure in China using the bootstrap Granger full-sample causality test and sub-sample rolling window estimation. The full-sample result indicates that there is no causality between defence spending and education expenditure. By adopting a time-varying rolling window approach to revisit the dynamic causal relationships, this article identifies a negative unidirectional causality running from education expenditure to defence spending. The finding suggests that it is the education expenditure crowds out defence spending in China rather than reverse. No causality is demonstrated from defence spending to education expenditure, indicating that an increase in military spending will not crowd out expenditure on education. The results could be partly explained by that the education expenditure in China is below the requirement of corresponding economic growth, urging for more financial budget. Whereas the findings support a negative trade-off between defence and education expenditures, they refute the theory of ‘guns for butter’.     

Guns and butter? Military expenditure and health spending on the eve of the Arab Spring

We examine the validity of the guns-versus-butter hypothesis in the pre-Arab Spring era. Using panel data from 1995 to 2011 – the eve of the Arab uprisings – we find no evidence that increased security needs as measured by the number of domestic terrorist attacks are complemented by increased military spending or more importantly ‘crowd out’ government expenditure on key public goods such as health care. This suggests that both expenditure decisions were determined by other considerations at the government level.