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Capital Destruction, Optimal Defense and Economic Growth

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  • Daniel Mejía
  • Carlos Posada

Abstract

The effects of capital destruction are endogenized in a neoclassical growth model where the economy can optimally allocate part of its labor force to defend capital from being destroyed. The purpose is to explain the optimal allocation of the labor force between productive and deterrence activities along the optimal growth path in response to exogenous terrorist attacks against the material wealth of the economy. The article makes special case to the recent Colombian case and sheds some light on the dramatic increase in the defense activities in Colombia as a result of the increase of terrorist attacks by rebeld groups.

Suggested Citation

  • Daniel Mejía & Carlos Posada, 2003. "Capital Destruction, Optimal Defense and Economic Growth," Borradores de Economia 257, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:257
    DOI: 10.32468/be.257
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    References listed on IDEAS

    as
    1. Carlos Esteban Posada & Francisco González, 2000. "El gasto en defensa, justicia y seguridad," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 2(2), pages 53-75, January-J.
    2. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    3. Grossman, Herschel I & Kim, Minseong, 1996. "Predation and Accumulation," Journal of Economic Growth, Springer, vol. 1(3), pages 333-350, September.
    4. Armando Montenegro & Carlos Esteban Posada, 1995. "Criminalidad en Colombia," Coyuntura Económica, Fedesarrollo, March.
    5. Levitt Steven & Mauricio Rubio, 2000. "Understanding crime in Colombia and what can be done about It," Working Papers Series. Documentos de Trabajo 3735, Fedesarrollo.
    6. Juan Luis Londono & Rodrigo Guerrero, 1999. "La violencia y sus costos en América Latina," Coyuntura Social 13025, Fedesarrollo.
    7. Robert J. Barro, 2003. "Nothing is Sacred: Economic Ideas for the New Millennium," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524155, December.
    8. Francisco González & Carlos Esteban Posada, 2001. "Criminalidad, violencia y gasto público en defensa, justicia y seguridad en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 3(4), pages 78-102, January-J.
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    Citations

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    Cited by:

    1. Zambrano Andrés & Zuleta Hernando, 2017. "Goal and Strategies of an Insurgent Group: Violent and Non-violent Actions," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 23(2), pages 1-7, April.
    2. Zuleta, Hernando & Villaveces, Marta Juanita & Andonova, Veneta, 2013. "Conflict and negotiation in Colombia: Are pre-donations useful?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 105-117.
    3. Adriana Camacho & Catherine Rodriguez, 2013. "Firm Exit and Armed Conflict in Colombia," Journal of Conflict Resolution, Peace Science Society (International), vol. 57(1), pages 89-116, February.
    4. Adriana Camacho & Catherine Rodriguez, 2013. "Firm Exit and Armed Conflict in Colombia," Journal of Conflict Resolution, Peace Science Society (International), vol. 57(1), pages 89-116, February.
    5. Estrada G., Fernando, 2011. "The logic of the violence in the civil war: The armed conflict in Colombia," Perfil de Coyuntura Económica, Universidad de Antioquia, CIE, June.
    6. Arias Andrés F. & Laura Ardila, 2003. "Military Expenditure and Economic Activity: The Colombian Case," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, September.
    7. Adriana Camacho, 2007. "Stress and birth outcomes: evidence from terrorist attacks in Colombia," Documentos CEDE 4014, Universidad de los Andes, Facultad de Economía, CEDE.
    8. Liu, Tao-Xiong & Hu, An-Gang & Zhou, Bi-Hua, 2011. "Defense Expenditure and Economic Growth under External Predation," MPRA Paper 29286, University Library of Munich, Germany.
    9. Hernando Zuleta & Juanita Villaveces, 2008. "Conflict and negotiation: a game theoretical approach," Documentos de Trabajo 5148, Universidad del Rosario.
    10. Julián David Parada, 2008. "Tasa de depreciación endógena y crecimiento económico," Documentos de Trabajo 4594, Universidad del Rosario.
    11. Estrada, Fernando, 2011. "Heuristic Schelling: economy of organized crime," MPRA Paper 31306, University Library of Munich, Germany.
    12. Andrés Zambrano & Hernando Zuleta, 2016. "Revealing the preferences of the FARC," Documentos CEDE 14572, Universidad de los Andes, Facultad de Economía, CEDE.

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    More about this item

    Keywords

    Capital accumulation; deterrence; capital destruction and economic growth.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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