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A Peace Dividend for Sri Lanka: The Case for a Return to Prosperity Following the End of Hostilities

Listed author(s):
  • Wijeweera Albert

    ()

    (The Petroleum Institute, Abu Dhabi)

  • Webb Matthew J.

    ()

    (The Petroleum Institute, Abu Dhabi)

Registered author(s):

    Throughout its long years of civil war, Sri Lanka maintained a healthy rate of GDP growth and increasing levels of military spending. Now that the war has ended, Sri Lanka faces the challenge of rebuilding and switching to a peace-time economy with potentially lower levels of defense spending. We employ a cointegration analysis and an error correction model to examine the relationship between non/military spending in Sri Lanka and identify the possible economic benefits of decreased military spending. We find that GDP growth in Sri Lanka is generally not responsive to military spending, but responds positively to non-military spending. Although non-military spending exerts a positive effect upon economic growth compared to military spending, the outcome is still sub-optimal due to the absence of an income multiplier effect. This prefaces potentially good economic news for Sri Lanka in the coming years assuming that hostilities do not resume, that the government can successfully divert resources from the military to the non-military sector and that private sector investment can be effectively encouraged to exert a crowding in effect.

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    File URL: https://www.degruyter.com/view/j/gej.2010.10.2/gej.2010.10.2.1634/gej.2010.10.2.1634.xml?format=INT
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    Article provided by De Gruyter in its journal Global Economy Journal.

    Volume (Year): 10 (2010)
    Issue (Month): 2 (May)
    Pages: 1-11

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    Handle: RePEc:bpj:glecon:v:10:y:2010:i:2:n:6
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    1. Peter Batchelor & J. Paul Dunne & David Saal, 2000. "Military spending and economic growth in South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 553-571.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    3. James Murdoch & Chung-Ron Pi & Todd Sandler, 1997. "The impact of defense and non-defense public spending on growth in Asia and Latin America," Defence and Peace Economics, Taylor & Francis Journals, vol. 8(2), pages 205-224.
    4. Ching-chong Lai & Jhy-yuan Shieh & Wen-Ya Chang, 2002. "Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(3), pages 179-186.
    5. 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.
    6. F. Gerard Adams & Jere R. Behrman & Michael Boldin, 1991. "Government Expenditures, Defense, and Economic Growth in the Ldcs: A Revised Perspective," Conflict Management and Peace Science, Peace Science Society (International), vol. 11(2), pages 19-35, February.
    7. Paul Dunne & Eftychia Nikolaidou & Dimitrios Vougas, 2001. "Defence spending and economic growth: A causal analysis for Greece and Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 12(1), pages 5-26.
    8. Michael Gerace, 2002. "US Military Expenditures and Economic Growth: Some Evidence from Spectral Methods," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(1), pages 1-11.
    9. Shieh, Jhy-yuan & Lai, Ching-chong & Chang, Wen-ya, 2002. "The impact of military burden on long-run growth and welfare," Journal of Development Economics, Elsevier, vol. 68(2), pages 443-454, August.
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