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The Peace Dividend: Military Spending Cuts and Economic Growth

  • Malcolm Knight

    (International Monetary Fund)

  • Norman Loayza

    (International Monetary Fund)

  • Delano Villanueva

    (International Monetary Fund)

Although conventional wisdom suggests that reducing military spending may improve a country's economic growth performance, empirical studies have produced ambiguous results. This paper extends a standard growth model and obtains consistent panel data estimates of the growth retarding effects of military spending via its adverse impact on capital formation and resource allocation. Simulation experiments suggest that a substantial long-run "peace dividend"--in the form of higher capacity output--may result from markedly lower military expenditure levels achieved in most regions during the late 1980s, and the further military spending cuts that would be possible if global peace could be secured.

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Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 43 (1996)
Issue (Month): 1 (March)
Pages: 1-37

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Handle: RePEc:pal:imfstp:v:43:y:1996:i:1:p:1-37
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  1. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  2. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
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  5. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  6. Malcolm Knight & Norman Loayza & Delano Villanueva, 1993. "Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach," IMF Staff Papers, Palgrave Macmillan, vol. 40(3), pages 512-541, September.
  7. Jong-Wha Lee, 1992. "International Trade, Distortions and Long-Run Economic Growth," IMF Working Papers 92/90, International Monetary Fund.
  8. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  9. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
  10. 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.
  11. Robert J. Barro & Jong-Wha Lee, 1993. "Losers and Winners in Economic Growth," NBER Working Papers 4341, National Bureau of Economic Research, Inc.
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