Military Spending and Economic Growth: The Case of Iran

Over the last decade, the Iranian Government budget on military has been higher than the average of the world. The current increasing international sanctions aim to reduce the military capabilities and capacities of the Iranian Government. We analyze the response of the Iranian economy to shocks in its military budget from 1959 to 2007, using impulse response functions and variance decomposition analysis. The Granger causality results show that there is unidirectional causality from the military spending growth rate to the economic growth rate. The response of income growth to increasing shocks in the military budget is positive and statistically significant.     

MILITARY EXPENDITURE AND ECONOMIC GROWTH

This paper tests the relationship between military expenditure and economic growth by including the impact of the share of military and civilian components of government expenditure in an economic growth model with endogenous technology. In this framework, we empirically consider the hypothesis of a non‐linear effect of military expenditure on economic growth. Differences between the costs and benefits of the defence sector has traditionally explained the non‐linear relationship suggesting that shocks to insecurity may also be a source of non‐linearity as they determine a re‐allocative effect within government expenditure. While parametric partial correlations are in line with empirical findings, the robustness of estimations is tested by using a non‐parametric approach. The negative relationship between military expenditure and growth in countries with high levels of military burden predicted by theory becomes significant only after including a proxy for re‐allocative effects in the growth equation.     

THE PEACE DIVIDEND EFFECT OF TURKISH CONVERGENCE TO THE EU: A MULTI‐REGION DYNAMIC CGE MODEL ANALYSIS FOR GREECE AND TURKEY

This paper examines the peace dividend effect of Turkish convergence to EU membership. By employing a multi‐region dynamic CGE model, we examine the prospect for conflict resolution if Turkey becomes an EU member. The model allows us to analyse several scenarios that imply varying amounts of reduction of the military expenditure/GDP ratios. On the one hand, this change will cause a decrease in sectoral demand for military expenditures, while on the other hand, reallocation of the reduced expenditure on (i) education, (ii) tax decrease, and (iii) infrastructure, should have a huge growth impact. Our dynamic CGE simulation experiments emphasize the economic gain for all parties involved.     

ON THE RELATIONSHIP BETWEEN MILITARY EXPENDITURE,THREAT, AND ECONOMIC GROWTH: A NONLINEAR APPROACH

The main objective of the paper is to decipher the military expenditure–economic growth relationship, taking the level of economic development (income) into consideration. Our findings suggest the following: (i) military expenditure has a significantly negative relationship to economic growth for the 23 countries with initial incomes (threshold variable) less than or equal to $475.93; (ii) when the threat level is heightened, economic growth (23 countries) is expected to decrease. However, military expenditure in the presence of sufficiently large threats increases growth; (iii) for the remaining 69 countries whose initial incomes (real GDP per capita in 1992 price) exceed $475.93, no significant relationship exists whether the threat variable is taken into consideration or not.     

Individual preferences and the demand for military expenditure*

Whose preferences determine the tradeoff between security and civilian output in deciding upon budget allocations to defence? This paper considers the role that consumer preferences might play in influencing military spending. We propose normative criteria to judge the economic or political efficiency of defence provision at a given time, and test them using Australian survey‐based micro‐data. Our results suggest that the political system has not delivered a simple social‐choice translation of individual preferences into collective outcomes, nor has it delivered results consistent with simple majority‐voting median preferences.     

Evaluating the trade‐off between military spending and investment in the United States

Using tests of a single equation model and cointegration techniques, this paper finds no evidence of a long run trade‐off, and some evidence of a short‐run trade‐off, between military spending and investment in post‐World War II United States data. The short‐run trade‐off is confined to the 1949–1971 period, and may be the result of the sharp expansion and contraction of military outlays in connection with the Korean and Vietnam Wars. In addition, cointegration techniques are used to identify a possible long‐run trade‐off between military spending and consumption.     

Military expenditure and economic growth: peru 1970–1996

The present study examines the effects of military expenditure on growth in Peru in the period from 1970 to 1996. By using a Deger‐type Simultaneous Equations Model it is possible to break up the net effect into supply‐ and demand‐side influences. The former consist of positive externalities of defence activities on the other sectors of the economy, while the latter can be described as crowding‐out of civilian investment. Estimations find the supply‐side effects to be insignificantly different from zero, while the crowding‐out effect of defence spending is significant and substantial. It is thereby established that defence expenditure has a negative overall effect on economic growth in Peru. Although several caveats – including specification problems of the Deger model, the quality of the data used, a relatively small sample and the presence of autocorrelation in the estimations – must be considered, these results turn out to be quite robust with respect to estimation methods (3SLS, 2SLS, OLS) and slight modifications to the model. They are also consistent with previous empirical findings from other countries and cross sectional studies.     

Colonizing military history: A millennial view on the economics of war

We briefly illustrate the application of fundamental principles of economics to three episodes of military history for the second millennium AD. The periods, principles, and cases examined are, first, the European Middle Ages (1000-1300; opportunity cost; siege warfare); second, the Enlightenment and the Age of Battle (1618-1814; expected marginal costs/benefits; the decision to engage in battle); and third, the Cold War (1945-1989; substitution; France's nuclear force de frappe).     

Performance measurement in military operations: information versus incentives

We explore the impact of strategic assessment efforts on military organizations at war. To do so, we construct a model to explore the impact of a principal’s choice among imperfect performance metrics for a military operation. In doing so, the principal must consider both the incentivizing and informational properties of the metric. We show the conditions under which uncertainty regarding the nature of the agent, as well as uncertainty regarding the operational environment, drives a metric choice that induces pathological behavior from the agent. More specifically, a poor metric choice can create an overly optimistic assessment and end up prolonging the conflict. We illustrate the model’s insights in the cases of World War II and the Vietnam War.     

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.