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A non-linear defence-growth nexus? evidence from the US economy

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  • Jesus Crespo Cuaresma
  • Gerhard Reitschuler

Abstract

The defense-growth nexus is investigated empirically using time series data for the US and allowing the effect of defense spending on growth to be non-linear. Using recently developed econometric methods involving threshold regressions, evidence of a level-dependent effect of military expenditure on GDP growth is found: the positive externality effect of defense spending prevails for relatively lower levels of defense spending (with respect to the history of defense spending in the US) and reverts its influence for higher levels.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

Volume (Year): 15 (2004)
Issue (Month): 1 ()
Pages: 71-82

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Handle: RePEc:taf:defpea:v:15:y:2004:i:1:p:71-82

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Related research

Keywords: Defense expenditures; Nonlinearity; Economic growth; Externality effect; Threshold models; JEL Codes; E20; E62; C22;

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References

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  1. Michael D. Stroup & Jac C. Heckelman, 2001. "Size Of The Military Sector And Economic Growth: A Panel Data Analysis Of Africa And Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 329-360, November.
  2. Joshua Aizenman & Reuven Glick, 2006. "Military expenditure, threats, and growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(2), pages 129-155.
  3. Paul Dunne & Duncan Watson, 2000. "Military expenditure and employment in South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 587-596.
  4. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  5. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  6. Joshua Aizenman & Reuven Glick, 2003. "Military expenditure, threats, and growth," Working Paper Series 2003-08, Federal Reserve Bank of San Francisco.
  7. Shieh, Jhy-yuan & Lai, Ching-chong & Chang, Wen-ya, 2002. "The impact of military burden on long-run growth and welfare," Journal of Development Economics, Elsevier, vol. 68(2), pages 443-454, August.
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Citations

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Cited by:
  1. McDonald Bruce D & Eger Robert J, 2010. "The Defense-Growth Relationship: An Economic Investigation into Post-Soviet States," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 16(1), pages 1-28, September.
  2. Luca Pieroni, 2007. "Military Spending and Economic Growth," Working Papers 0708, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  3. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
  4. Jesús Crespo Guaresma & Gerhard Reitschuler, 2003. ""Guns or Butter?" Revisited: Robustness and Nonlinearity Issues in the Defense-Grotwth Nexus," Vienna Economics Papers 0310, University of Vienna, Department of Economics.
  5. d'Agostino, G. & Dunne, J.P. & Pieroni, L., 2011. "Optimal military spending in the US: A time series analysis," Economic Modelling, Elsevier, vol. 28(3), pages 1068-1077, May.
  6. Keller, Katarina & Poutvaara, Panu & Wagener, Andreas, 2006. "Military Draft and Economic Growth in OECD Countries," IZA Discussion Papers 2022, Institute for the Study of Labor (IZA).
  7. Shahbaz, Muhammad & Afza, Talat & Shabbir, Shahbaz Muhammad, 2011. "Does defence spending impede economic growth? cointegration and causality analysis for Pakistan," MPRA Paper 30887, University Library of Munich, Germany, revised 27 Mar 2011.
  8. J Paul Dunne & Mehmet Uye, 2009. "Military Spending and Development," Working Papers 0902, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  9. 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.

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