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Optimal Military Spending, Trade and Stochastic Economic Growth

Author

Listed:
  • Deng-Shan Wang

    (CEMA, Central University of Finance and Economics)

  • Yan Wang

    (CEMA, Central University of Finance and Economics)

  • Yifang Liu

    (School of Economics, Central University of Finance and Economics)

  • Heng-fu Zou

    (CEMA, Central University of Finance and Economics)

Abstract

In this paper, based on dynamic programming we investigate the military spending, trade and wealth accumulation in a stochastic endogenous growth model. For the Cobb-Dauglas utility function, explicit solutions of the optimal problem in the home country are obtained, and the optimal consumptions of domestic goods and foreign goods, the share of domestic capital stock and foreign bond holdings are derived. The comparative dynamic analysis shows that when intertemporal substitution in consumption is relative elastic, the lower the foreign military spending, the higher variance of foreign military spending and lower volatility in the return of capital or bonds will result in lower consumption ratio and higher economic growth rate.

Suggested Citation

  • Deng-Shan Wang & Yan Wang & Yifang Liu & Heng-fu Zou, 2009. "Optimal Military Spending, Trade and Stochastic Economic Growth," CEMA Working Papers 373, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:373
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    References listed on IDEAS

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    More about this item

    Keywords

    Military spending; Wealth accumulation; Trade; Foreign bond holdings; Stochastic economic growth;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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