Military Spending And The Growth‐Maximizing Allocation Of Public Capital: A Cross‐Country Empirical Analysis
AbstractIn this paper drawing from the theoretical framework developed by Shieh et al., (2002), we present an endogenous growth model to empirical analyze the growth maximizing allocation of public capital among military spending and investment in infrastructure. Using this general model of public capital formation, we derive the growth-maximizing values of the shares of public capital allocated to itâs two different types, as well as the growth-maximizing tax rate (amount of total public capital as a share of GDP). Then we proceed with an empirical investigation of the theoretical implication of the model that both the effects of the shares of public capital and the tax rate on the long-run growth rate are non-linear, following an inverse U-shaped pattern. Using data of public investment in infrastructure and military capital formation, we investigate the long run relationship between economic growth and the allocation of public capital using panel cointegration analysis in a sample of 55 developed and developing countries. Our empirical results confirm the theoretical implications of the model for the majority of the countries in the sample. This finding is more consistent for the OECD countries although the same result can be drawn for a large part of the developing countries.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 49 (2011)
Issue (Month): 4 (October)
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- Pantelis Kalaitzidakis & Vangelis Tzouvelekas, 2007. "Military Spending and the Growth-Maximizing Allocation of Public Capital: A Cross-Country Empirical Analysis," Working Papers 0722, University of Crete, Department of Economics.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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- Alptekin, Aynur & Levine, Paul, 2010.
"Military Expenditure and Economic Growth: A Meta-Analysis,"
28853, University Library of Munich, Germany.
- Alptekin, Aynur & Levine, Paul, 2012. "Military expenditure and economic growth: A meta-analysis," European Journal of Political Economy, Elsevier, vol. 28(4), pages 636-650.
- Goodness C. Aye & Mehmet Balcilar & John P. Dunne & Rangan Gupta & Renee van Eyden, 2013. "Military Expenditure, Economic Growth and Structural Instability: A Case Study of South Africa," Working Papers 201344, University of Pretoria, Department of Economics.
- Thibaut Dort & Pierre-Guillaume Méon & Khalid Sekkat, 2013. "Does investment spur growth everywhere? Not where institutions are weak," Working Papers CEB 13-030, ULB -- Universite Libre de Bruxelles.
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