How to Make Butter out of Guns: The Turkish Case and the Greek Bitter Lesson

Purpose: This paper aims at assessing the links between defence expenditure and the growth of the Greek and Turkish economies. The issue appears to be of particular interest for Greece, given the increased defence priorities of today on the one hand, and the shortage of resources on the other. Design/Methodology/Approach: Using NATO and SIPRI databases we construct a system of behavioural equations for both countries. We estimate the system using GMM to assess the extent to which the development of a domestic defence industrial base (DIB) will contribute to the growth of the economy, the reduction of unemployment via the spin-offs and the import substitution of defence equipment. Findings: The results indicate that unlike the positive impact of the Turkish defence industry on economic growth, the cost imposed on the Greek economy due to the negligible contribution of its defence industry is hard to bear in view of the recent geopolitical developments in the Aegean and the Eastern Mediterranean. Practical Implications: Promoting a sound defence industrial base contributes to growth. If the industrial base is considerably defence-oriented, contributes to self-sufficiency, immediate response in cases of emergency and less dependence on foreign suppliers. Originality/Value: Unless Greece proceeds to an import-substitution policy regarding defence procurement, the increased requirements in view of the recent geopolitical developments will impose a prohibitive cost on the economy.