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Modeling the Defense-Growth Nexus in a Post-Conflict Country - A Piecewise Linear Approach

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  • Gerhard Reitschuler

    ()

  • Ludger J. Löning

Abstract

The defense-growth nexus is investigated empirically using longitudinal data for Guatemala and allowing the effect of defense spending on growth to be nonlinear. Using recently developed econometric methods involving threshold regressions, evidence of a level-dependent effect of military expenditure on GDP growth is found: a positive and significant externality effect of defense spending prevails for relatively low levels of defense spending and becomes negative, albeit insignificant, for higher levels.

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Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 097.

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Length: 24 pages
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:got:iaidps:097

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Keywords: Guatemala; defense expenditures; nonlinearity; economic growth; externality effect;

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  1. Kormendi, Roger C, 1983. "Government Debt, Government Spending, and Private Sector Behavior," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 994-1010, December.
  2. Deger, Saadet & Sen, Somnath, 1995. "Military expenditure and developing countries," Handbook of Defense Economics, Elsevier, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 11, pages 275-307 Elsevier.
  3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
  4. Biswas, Basudeb & Ram, Rati, 1986. "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 361-72, January.
  5. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics, Boston College Department of Economics 319., Boston College Department of Economics, revised 12 May 1998.
  6. Donald W.K. Andrews & Werner Ploberger, 1992. "Optimal Tests When a Nuisance Parameter Is Present Only Under the Alternative," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1015, Cowles Foundation for Research in Economics, Yale University.
  7. Benoit, Emile, 1978. "Growth and Defense in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 26(2), pages 271-80, January.
  8. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 12(1-2), pages 59-73.
  9. 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.
  10. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 64(2), pages 413-30, March.
  11. Hooker, Mark A & Knetter, Michael M, 1997. "The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(3), pages 400-421, August.
  12. Ram, Rati, 1995. "Defense expenditure and economic growth," Handbook of Defense Economics, Elsevier, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 10, pages 251-274 Elsevier.
  13. Paul Dunne & Eftychia Nikolaidou, 2001. "Military expenditure and economic growth: A demand and supply model for Greece, 1960-96," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(1), pages 47-67.
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