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Military Expenditure, Threats, and Growth

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  • Aizenman, Joshua
  • Glick, Reuven

Abstract

This paper clarifies one of the puzzling results of the economic growth literature: the impact of military expenditure is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. We start by empirical evaluation of the non-linear interactions between military expenditure, external threats, corruption, and other relevant controls. While growth falls with higher levels of military spending, given the values of the other independent variables, we show that military expenditure in the presence of threats increases growth. We explain the presence of these non-linearities in an extended version of Barro and Sala-i-Martin (1995), allowing the dependence of growth on the severity of external threats, and on the effective military expenditure associated with these threats.

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Bibliographic Info

Paper provided by Center for International Economics, UC Santa Cruz in its series Santa Cruz Center for International Economics, Working Paper Series with number qt41r4105h.

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Date of creation: 01 Sep 2003
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Handle: RePEc:cdl:scciec:qt41r4105h

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Keywords: Economic growth; military expenditure; external threats; corruption;

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  1. Hirshleifer, Jack, 1995. "Theorizing about conflict," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 7, pages 165-189 Elsevier.
  2. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  3. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  4. Landau, Daniel, 1996. "Is one of the 'peace dividends' negative? Military expenditure and economic growth in the wealthy OECD countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(2), pages 183-195.
  5. Jack Hirshleifer, 1995. "Theorizing About Conflict," UCLA Economics Working Papers 727, UCLA Department of Economics.
  6. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  7. Malcolm Knight & Norman Loayza & Delano Villanueva, 1996. "The Peace Dividend: Military Spending Cuts and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 1-37, March.
  8. Paul Dunne & Sam Perlo-Freeman, 2003. "The Demand for Military Spending in Developing Countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 23-48.
  9. International Monetary Fund, 2000. "Corruption and Military Spending," IMF Working Papers 00/23, International Monetary Fund.
  10. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  11. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters, in: National Saving and Economic Performance, pages 271-304 National Bureau of Economic Research, Inc.
  12. John Wakeman-Linn & Nancy Louise Happe, 1994. "Military Expenditure and Arms Trade: Alternative Data Sources," IMF Working Papers 94/69, International Monetary Fund.
  13. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  14. Ram, Rati, 1995. "Defense expenditure and economic growth," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 10, pages 251-274 Elsevier.
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Cited by:
  1. 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.
  2. Saito, Tetsuya, 2010. "Chance of revolts and ability of oppressions: a comment on the Acemoglu-Robinson model," Economics Discussion Papers 2010-7, Kiel Institute for the World Economy.
  3. J Paul Dunne & Nan Tian, 2013. "Military Expenditure, Economic Growth and Heterogeneity," SALDRU Working Papers 95, Southern Africa Labour and Development Research Unit, University of Cape Town.
  4. Khalid ZAMAN & Qazi Shujaat MAHMOOD & Muhammad Mushtaq KHAN & Awais RASHID & Mehboob AHMAD, 2012. "An Empirical Investigation of External Debt - Military Expenditure Nexus in Bangladesh," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(1), pages 173-188, June.
  5. Jesus Crespo Cuaresma & Gerhard Reitschuler, 2004. "A non-linear defence-growth nexus? evidence from the US economy," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 71-82.
  6. Huang, Bwo-Nung & Hwang, M.J. & Yang, C.W., 2008. "Does more energy consumption bolster economic growth An application of the nonlinear threshold regression model," Energy Policy, Elsevier, vol. 36(2), pages 755-767, February.
  7. Vincenzo Bove & Georgios Efthyvoulou, 2013. "Political Cycles in Public Expenditure: Butter vs. Guns," Working Papers 2013016, The University of Sheffield, Department of Economics.
  8. repec:ebl:ecbull:v:15:y:2008:i:16:p:1-7 is not listed on IDEAS
  9. Alptekin, Aynur & Levine, Paul, 2010. "Military Expenditure and Economic Growth: A Meta-Analysis," MPRA Paper 28853, University Library of Munich, Germany.
  10. Chad R. Wilkerson & Megan D. Williams, 2008. "How is the rise in national defense spending affecting the Tenth District economy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 49-79.
  11. Vincenzo Bove & Jennifer Brauner, 2011. "The Demand for Military Expenditure in Authoritarian Regimes," Birkbeck Working Papers in Economics and Finance 1106, Birkbeck, Department of Economics, Mathematics & Statistics.
  12. Arias Andrés F. & Laura Ardila, 2003. "Military Expenditure and Economic Activity: The Colombian Case," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  13. 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.
  14. Axel Dreher & Thomas Herzfeld, 2005. "The Economic Costs of Corruption: A Survey and New Evidence," Public Economics 0506001, EconWPA.
  15. Nelson Ramírez-Rondán & Saki Bigio, 2006. "Corruption and Development Indicators: An Empirical Review," Working Papers 2006-007, Banco Central de Reserva del Perú.
  16. J Paul Dunne & Ron Smith & Dirk Willenbockel, 2004. "Models of Military Expenditure and Growth: A Critical Review," Working Papers 0408, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  17. Kimbambu Tsasa Vangu, Jean - Paul, 2012. "Analyse de la Relation Guerres Civiles et Croissance Économique
    [Civil Wars and Economic Growth in DRC]
    ," MPRA Paper 42424, University Library of Munich, Germany, revised 05 Feb 2012.
  18. 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.
  19. d'Agostino, Giorgio & Dunne, John Paul & Pieroni, Luca, 2013. "Military Expenditure, Endogeneity and Economic Growth," MPRA Paper 45640, University Library of Munich, Germany.
  20. Ari Francisco de Araujo Junior & Cláudio D. Shikida, 2008. "Military Expenditures, External Threats and Economic Growth," Economics Bulletin, AccessEcon, vol. 15(16), pages 1-7.

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