Does the Military Public Expenditure Matter for Economic Growth? Evidence from Egypt during the Period (1981/1982-2011/2012)

The relationship between the military and civilian components of public expenditure and economic growth has always been controversial. While the “Guns and Butter Approach†stresses on the positive externalities associated to the military expenditure through the modernization and technological channels, the “Guns or Butter Approach†gives more attention to the opportunity costs and crowding out effects that result from the military expenditure. Using annual data set for the real GDP growth rate and the military and civilian expenditure components of public expenditure in Egypt during the time period (1981/1982-2011/2012), the study finds the following: 1) the share of the civilian expenditure to GDP is positively and significantly correlated to the economic growth in the long run, 2) the military expenditure to GDP ratio is insignificantly correlated to the long run economic growth rates, 3) and the share of the military expenditure to total public expenditure is negatively and significantly correlated to the economic growth rates in the long run. The error correction model estimations, however, show that both shares of military and civilian expenditures to GDP are negatively correlated to the economic growth in the short run.