The impact of defense and non‐defense public spending on growth in Asia and Latin America∗

For a three‐sector Feder‐Ram framework, we present time‐series, cross‐sectional estimates for two cohorts, consisting of Asian and Latin American countries. The estimates indicate that private investment, and defense and non‐defense public spending are growth promoting for alternative error components representations. For the best error components representation, greater growth enhancement is associated with the two forms of public spending in Asia than in Latin America, while the opposite comparison characterizes private investment. Although defense is growth promoting, an opportunity cost exists insofar as non‐defense spending, financed by defense spending, appears to give a small net boost to growth in Latin America.     

The Determinants of Arms Production

This study analyzes the determinants of arms production in 15 countries using annual panel data from 1997 to 2002. The results suggest that real GDP per capita, military expenditures, arms exports, and arms imports are positively related to arms production.     

Defense spending and the macroeconomy

Given Kinsella's (1990, 1991) appeal for analysis to be pursued using sub‐annual level of data, we pursue such an endeavor in this paper. We examime the effect of defence spending on real output, the unemployment rate, price level, and interest rate covering a quarterly time frame 1960:1 to 1988:1 using an unrestricted vector autoregression framework. Our results parallel the findings of Kinsella in that there appears no causal relationship in either direction between defence spending and economic performance.     

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.     

FIGHTING TERRORISM: ARE MILITARY MEASURES EFFECTIVE? EMPIRICAL EVIDENCE FROM TURKEY

The present article aims at investigating the causal relationship between defense spending and terrorism in Turkey using the Autoregressive Distributed Lag (ARDL) bounds testing procedure and Granger‐causality analysis. The findings reveal that there exists a unidirectional causality running form terrorist attacks to defense spending as expected, but not vice versa. In the light of this finding it can be inferred that military anti‐terrorism measures alone are not sufficient to prevent terrorism.     

MILITARY EXPENDITURE AND GRANGER CAUSALITY: A CRITICAL REVIEW

A large literature has used tests for Granger (1969) non‐causality, GNC, to examine the interaction of military spending with the economy. Such tests answer a specific although quite limited question: can one reject the null hypothesis that one variable does not help predict another? If one can reject, there is said to be Granger causality, GC. Although the limitations of GNC tests are well known, they are often not emphasised in the applied literature and so may be forgotten. This paper considers the econometric and methodological issues involved and illustrates them with data for the US and other countries. There are three main issues. First, the tests may not be informative about the substantive issue, the interaction of military expenditure and the economy, since Granger causality does not correspond to the usual notion of economic causality. To determine the relationship of the two notions of causality requires an identified structural model. Second, the tests are very sensitive to specification. GNC testing is usually done in the context of a vector autoregression, VAR, and the test results are sensitive to the variables and deterministic terms included in the VAR, lag length, sample or observation window used, treatment of integration and cointegration and level of significance. Statistical criteria may not be very informative about these choices. Third, since the parameters are not structural, the test results may not be stable over different time periods or different countries.     

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.     

Guns–butter tradeoff in contemporary China

This study offers an investigation of the relationship between defense and social spending in the People's Republic of China. In particular, three consecutive questions are answered here. Does a warfare–welfare tradeoff exist in China's budgetary allocation? Is it positive or negative? What is the causal direction involved? By applying a vector autoregression analysis for the period of 1952–2006, this study finds a unidirectional crowd-out effect going from defense to social spending.     

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.     

ARE USA CITIZENS AT RISK OF TERRORISM IN EUROPE?

This paper analyzes the determinants of the probability of US citizens being victims of terrorist attacks in European countries, taking into account uncontrolled heterogeneity of the data. The analysis employs ITERATE data from February 1968 to December 2002 to ascertain significant characteristics that influence the probability (e.g. location, type of casualties, type of attack, and type of terrorists). To deal with the unobserved heterogeneity a random‐parameter logit model (mixed logit) is used. Some policy implications are presented.     

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.     

Revisiting the Defense–Growth nexus in European countries

This study revisits the long run and dynamic causal linkages between defense spending and economic growth in 15 selected European countries for the period 1988–2010 by utilizing recent developments in non-stationary panel data analysis. To this end, the series properties of per capita defense spending, per capita real capita stocks, and per capita real GDP are investigated by the panel unit root tests with and without breaks that support evidence on unit root. The panel cointegration tests with and without breaks are also subsequently employed to investigate whether there exists a long-run equilibrium relationship between these three variables. Finally, our causality analysis from panel vector error-correction model suggests that there is a feedback relation between real capital stock and real GDP in both short and long run, a one-way Granger causality running from real GDP to defense spending in both short and long run, and defense spending only Granger causes real capital stock in the long run.     

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.