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.     

The structure of the defense industry and the security needs of the country: a differentiated products model

This paper models the interactions between the defense needs of the USA and Western Europe, which produce several heterogeneous defense goods, and the defense industry market structure. The results show that net defense costs of the USA and Europe are lower when the number of defense firms in each arms‐producing country is small and when the world prices of the defense goods are high. The model predicts that the increase in world prices will crowd‐out countries in the developing world from the market for modern weapon systems and may force them to develop and use ‘cheap and dirty’ weapon systems.     

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.     

Aid versus sanctions for taming oppressors: theory and case study of the Iraqi Kurds

We model an oppressor aiming at victimizing an excluded group in his country, with two main variants. A foreign power affects his behaviour using either conditional aid, subject to the dictator’s participation constraint, or the threat of sanctions, broadly defined, subject to the credibility constraint. The choice between the two is either determined by the latter, or by their relative cost. Aid is preferred when the threat of sanctions is ineffective, and sanctions are too expensive. Sanctions might be imposed, if the threat is ineffective. A case study of the Iraqi Kurds after Iraq was subject to sanctions is presented.     

Dynamic Winner-Take-All Conflict

This paper empirically investigates the importance of financial and political variables in determining debt rescheduling probabilities in Turkey for 1955–2000. The problem of sovereign debt default and rescheduling has been the subject of substantial academic research during the last two decades. There has been criticism of models of developing countries’ indebtedness and rescheduling that rely solely on some economic or financial predictors related to country debt, the foreign exchange sector or the domestic economic situation. Using probit analysis, this paper indicates that financial variables are important determinants of rescheduling probabilities. However, political variables are not significant in our models.     

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.     

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.     

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.     

NATO BENEFITS,BURDENS AND BORDERS: COMMENT

This note refutes criticism raised by Solomon about past tests used to ascertain the concordance between NATO benefits and burdens. In so doing, a case is made for keeping the benefit proxy based on exposed borders. Moreover, a truer sensitivity analysis than that offered by Solomon is suggested.