Growth, political instability, and the defense burden
AbstractThis paper develops a model to examine the economic effects of political instability and military expenditure. In the model, "kleptocracies" use defense as "imperfect" insurance against the probability of being overthrown. Increasing defense has a secondary effect of augmenting the human capital stock (a spin-off effect). However, defense investment comes at the expense of consuming scarce resources (a crowding out effect). The paper's central contribution is to model each of these effects and their relationship to one another. The resulting theory predicts that the equilibrium is Pareto inefficient and that increased political instability and increased defense can inhibit economic growth. Empirically, increases in political instability are found to decrease growth while increases in defense are found to decrease political instability. The paper also finds that increases in defense have a direct negative effect on growth, although the relation is weak. The weak relation implies the aforementioned crowding out effect is largely mitigated by the spin-off effect.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 436.
Date of creation: 1992
Date of revision:
Other versions of this item:
- Blomberg, S Brock, 1996. "Growth, Political Instability and the Defence Burden," Economica, London School of Economics and Political Science, vol. 63(252), pages 649-72, November.
- S. Brock Blomberg, 1994. "Growth, political instability and the defense burden," Research Paper 9420, Federal Reserve Bank of New York.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth Rogoff & Anne Sibert, 1986.
"Elections and Macroeconomic Policy Cycles,"
NBER Working Papers
1838, National Bureau of Economic Research, Inc.
- Londregan, J. & Poole, K.T., 1991. "The Seizure of Executive Power and Economic Growth: Some Additional Evidence," GSIA Working Papers 1991-6, Carnegie Mellon University, Tepper School of Business.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Skaperdas, S., 1990.
"Conflict And Attitudes Toward Risk,"
90-91-05, California Irvine - School of Social Sciences.
- Blanchard, Olivier J, 1985.
"Debt, Deficits, and Finite Horizons,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 223-47, April.
- Faini, Riccardo & Annez, Patricia & Taylor, Lance, 1984. "Defense Spending, Economic Structure, and Growth: Evidence among Countries and Over Time," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 487-98, April.
- Kenneth Rogoff, 1987.
"Equilibrium Political Budget Cycles,"
NBER Working Papers
2428, National Bureau of Economic Research, Inc.
- Smith, Ron P, 1978. "Military Expenditure and Capitalism: A Reply," Cambridge Journal of Economics, Oxford University Press, vol. 2(3), pages 299-304, September.
- Deger, Saadet, 1986. "Economic Development and Defense Expenditure," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 179-96, October.
- Smith, R P, 1980. "The Demand for Military Expenditure," Economic Journal, Royal Economic Society, vol. 90(363), pages 811-20, December.
- Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Oxford University Press, vol. 1(1), pages 61-76, March.
- Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
- Alesina, Alberto, et al, 1996.
" Political Instability and Economic Growth,"
Journal of Economic Growth,
Springer, vol. 1(2), pages 189-211, June.
- Smith, Ronald P., 1980. "Military expenditure and investment in OECD countries, 1954-1973," Journal of Comparative Economics, Elsevier, vol. 4(1), pages 19-32, March.
- Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996.
"Political Instability and Economic Growth,"
4553024, Harvard University Department of Economics.
- 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.
- S. Brock Blomberg & Gregory D. Hess, 2006.
"How Much Does Violence Tax Trade?,"
The Review of Economics and Statistics,
MIT Press, vol. 88(4), pages 599-612, November.
- Jong-A-Pin, Richard, 2009.
"On the measurement of political instability and its impact on economic growth,"
European Journal of Political Economy,
Elsevier, vol. 25(1), pages 15-29, March.
- Jong-A-Pin, R., 2006. "On the measurement of political instability and its impact on economic growth," Research Report 06C05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Fic, Tatiana & Ghate, Chetan, 2005.
"The welfare state, thresholds, and economic growth,"
Elsevier, vol. 22(3), pages 571-598, May.
- Tatiana Fic & Chetan Ghate, 2004. "The Welfare State, Thresholds, and Economic Growth," Discussion Papers of DIW Berlin 424, DIW Berlin, German Institute for Economic Research.
- Janmaat, John A & Ruijs, Arjan, 2006. "Investing in Arms to Secure Water," MPRA Paper 10667, University Library of Munich, Germany.
- Patrick Asea & S. Brook Blomberg, 1997.
UCLA Economics Working Papers
764, UCLA Department of Economics.
- Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, World Bank Group, vol. 8(3), pages 351-71, September.
- 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.
- G. d'Agostino & J.P Dunne & L. Pieroni, 2012.
"Government spending, corruption and economic growth,"
SALDRU Working Papers
74, Southern Africa Labour and Development Research Unit, University of Cape Town.
- d'Agostino, Giorgio & Dunne, Paul J. & Pieroni, Luca, 2012. "Government spending, corruption and economic growth," MPRA Paper 38109, University Library of Munich, Germany.
- Ali Kutan & Su Zhou, 1995. "Sociopolitical instability, volatility, and the bid-ask spread: Evidence from the free market for dollars in Poland," Open Economies Review, Springer, vol. 6(3), pages 225-236, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).
If references are entirely missing, you can add them using this form.