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The Peace Dividend: Military Spending Cuts and Economic Growth

Author

Listed:
  • Malcolm Knight

    (International Monetary Fund)

  • Norman Loayza

    (International Monetary Fund)

  • Delano Villanueva

    (International Monetary Fund)

Abstract

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.

Suggested Citation

  • Malcolm Knight & Norman Loayza & Delano Villanueva, 1996. "The Peace Dividend: Military Spending Cuts and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 1-37, March.
    • Handle: RePEc:pal:imfstp:v:43:y:1996:i:1:p:1-37
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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