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Military Spending and Economic Growth

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  • Luca Pieroni

    ()
    (University of Perugia and University of the West of England)

Abstract

This paper proposes to test the relationship between military expenditure and economic growth by including the impact of the share of military and civilian components of government expenditure in an economic growth model with endogenous technology. In this framework, we empirically consider the hypothesis of a nonlinear effect of military expenditure on economic growth. The comparison between costs and benefits of defence sector has traditionally explained the nonlinear relationship. This paper suggests that shocks to insecurity may also be a source of nonlinearity as they determine a re-allocative effect within government expenditure. While parametric partial correlations are in line with empirical findings, the robustness of estimations is tested by using a nonparametric approach. The negative relationship between military expenditure and growth in countries with high levels of military burden predicted by theory becomes significant only after including a proxy for re-allocative effects in the growth equation.

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File URL: http://carecon.org.uk/DPs/0708.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0708.

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Length: 20 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:uwe:wpaper:0708

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Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
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Keywords: Economic growth; military burden; cross-section estimations;

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References

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  1. Aizenman, Joshua & Glick, Reuven, 2003. "Military Expenditure, Threats, and Growth," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt41r4105h, Center for International Economics, UC Santa Cruz.
  2. Catherine J. Morrison & Amy Ellen Schwartz, 1992. "State Infrastructure and Productive Performance," NBER Working Papers 3981, National Bureau of Economic Research, Inc.
  3. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 21(1), pages 183-204, January.
  4. Jesús Crespo Guaresma & Gerhard Reitschuler, 2003. ""Guns or Butter?" Revisited: Robustness and Nonlinearity Issues in the Defense-Grotwth Nexus," Vienna Economics Papers, University of Vienna, Department of Economics 0310, University of Vienna, Department of Economics.
  5. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(2-3), pages 313-344, April.
  6. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  7. 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.
  8. Andrea Mario Lavezzi & Davide Fiaschi, 2004. "Nonlinear Growth and the Productivity Slowdown," Computing in Economics and Finance 2004, Society for Computational Economics 162, Society for Computational Economics.
  9. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, Econometric Society, vol. 68(3), pages 575-604, May.
  10. Jesus Crespo Cuaresma & Gerhard Reitschuler, 2004. "A non-linear defence-growth nexus? evidence from the US economy," Defence and Peace Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(1), pages 71-82.
  11. Landau, Daniel, 1993. "The economic impact of military expenditures," Policy Research Working Paper Series 1138, The World Bank.
  12. 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.
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Citations

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Cited by:
  1. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2010. "Assessing the Effects of Military Expenditure on Growth," Working Papers, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol 1012, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  2. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2009. "Optimal Military Spending in the US: A Time Series Analysis," Working Papers, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol 0903, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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