Book review

La Conversion économique du secteur militaire, J. FONTANEL, Economica, Paris, 1994, pp. 112. Paperback. ISBN 2–7178–2650–5.     

Country survey VII: Military spending in Greece

Greece is one of the poorest members of the European Union, yet its defence burden is the highest in Europe and NATO. At around 5.6% of GDP in 1994 it is twice the average NATO and European Union burden. In terms of the human and material resources devoted to defence yearly Greece is in comparative terms the most militarised country in Europe. The purpose of this paper is to examine military spending in Greece. It begins with a brief survey of the Greek economy and its development as it relates to defence. The determinants of Greek military spending are then modelled and analysed. The causes of military spending appear to be primarily regional rivalries and conflicts. In particular the ongoing dispute with Turkey is the main external security determinant of defence spending in Greece. The supply of defence inputs is then examined with reference to equipment procurement and indigenous arms production.     

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.     

MODELS OF MILITARY EXPENDITURE AND GROWTH: A CRITICAL REVIEW

This paper reviews some of the theoretical and econometric issues involved in estimating growth models that include military spending. While the mainstream growth literature has not found military expenditure to be a significant determinant of growth, much of the defence economics literature has found significant effects. The paper argues that this is largely the product of the particular specification, the Feder–Ram model, that has been used in the defence economics literature but not in the mainstream literature. The paper critically evaluates this model, detailing its problems and limitations and suggests that it should be avoided. It also critically evaluates two alternative theoretical approaches, the Augmented Solow and the Barro models, suggesting that they provide a more promising avenue for future research. It concludes with some general comments about modelling the links between military expenditure and growth.     

LAND INEQUALITY AND CONFLICT IN LATIN AMERICA IN THE TWENTIETH CENTURY

Fiji's total debt stands at 65% of GDP. Domestic debt constitutes 55% of GDP. The goal of this paper is to investigate whether military expenditure has contributed to Fiji's exploding debt levels over the period 1970 to 2005. Our empirical analysis, conducted within a cointegration and vector error‐correction framework, suggests that, in the long‐run, military expenditure has had a statistically significant positive impact on both external debt and domestic debt, while income has had a statistically significant positive impact on domestic debt and a statistically significant negative impact on external debt. We explain the reasons behind this finding and draw some policy implications.     

Determinants of military expenditure and the role of globalisation in a cross-country analysis

Abstract

Anecdotal evidence offers conflicting views on the impact of globalisation on military expenditure. We contribute to the existing literature by investigating the effect of globalisation on military expenditure in 82 countries for the period, 1989–2012. After introducing economic and strategic variables into the model, we utilise the dynamic panel generalised method of moments system to estimate the relationship in the variables. The empirical findings reveal that globalisation reduces both military burden and real military expenditure. The findings are consistent, irrespective of the globalisation indicator adopted. The policy implications of the results are explained.     

SHOULD MILITARY UNIFORMS CARRY THE UNION LABEL?

It is widely believed that the unionization of military labor leads to reduced discipline and lower combat capability. Case studies of the performance of existing military unions, however, generally suggest that unionization has a benign impact on the performance of the armed forces. In this paper, we offer a theoretical economic analysis of the likely impact of military unionization on volunteer militaries. Our analysis suggests that military unionization will unambiguously lead to larger, but less disciplined, armed forces, leaving the overall impact of unionization on defense capability ambiguous. Military unionization, however, will clearly enhance social welfare.     

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.