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Military expenditure and economic growth: A demand and supply model for Greece, 1960-96


  • Paul Dunne
  • Eftychia Nikolaidou


This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960-1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.

Suggested Citation

  • Paul Dunne & Eftychia Nikolaidou, 2001. "Military expenditure and economic growth: A demand and supply model for Greece, 1960-96," Defence and Peace Economics, Taylor & Francis Journals, vol. 12(1), pages 47-67.
  • Handle: RePEc:taf:defpea:v:12:y:2001:i:1:p:47-67
    DOI: 10.1080/10430710108404976

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    References listed on IDEAS

    1. Keith Hartley & Todd Sandler (ed.), 1995. "Handbook of Defense Economics," Handbook of Defense Economics, Elsevier, edition 1, volume 1, number 1, 00.
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    Cited by:

    1. Gerhard Reitschuler & Ludger J. Löning, 2004. "Modeling the Defense-Growth Nexus in a Post-Conflict Country - A Piecewise Linear Approach," Ibero America Institute for Econ. Research (IAI) Discussion Papers 097, Ibero-America Institute for Economic Research.
    2. repec:ebl:ecbull:eb-18-00163 is not listed on IDEAS
    3. Jülide Yildirim & Nadir Öcal, 2016. "Military expenditures, economic growth and spatial spillovers," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(1), pages 87-104, February.
    4. Durmuþ Özdemir & Ali Bayar, 2006. "The Impacts of Sectoral Demand for Military Expenditure on Peace Dividend: A Case for Turkey and Greece," Papers of the Annual IUE-SUNY Cortland Conference in Economics,in: Proceedings of the Conference on Human and Economic Resources, pages 283-296 Izmir University of Economics.
    5. Rati Ram, 2006. "Defense Expenditure and Economic Growth: Evidence from Cross-Country Panel Data," Chapters,in: The Elgar Companion to Public Economics, chapter 11 Edward Elgar Publishing.
    6. Julien Malizard, 2010. "Causality Between Economic Growth and Military Expenditure: The Case of France," Defense & Security Analysis, Taylor & Francis Journals, vol. 26(4), pages 401-413, December.
    7. Hannah Galvin, 2003. "The impact of defence spending on the economic growth of developing countries: A cross-section study," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(1), pages 51-59.
    8. Shahbaz, Muhammad & Khraief, Naceur & Kumar Mahalik, Mantu & Khan, Saleheen, 2018. "Military Spending Response to Defense Shocks? International Evidence," MPRA Paper 87362, University Library of Munich, Germany, revised 12 Jun 2018.
    9. Paresh Kumar Narayan & Russell Smyth, 2007. "The Military Expenditure-External Debt Nexus: New Evidence From A Panel Of Middle Eastern Countries," Monash Economics Working Papers 17-07, Monash University, Department of Economics.
    10. Odehnal Jakub, 2015. "Military Expenditures and Free-Riding in NATO," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 21(4), pages 479-487, December.
    11. Eftychia Nikolaidou, 2016. "Greece, Portugal, Spain: New evidence on the economic effects of military expenditure using the new SIPRI data," Economics of Peace and Security Journal, EPS Publishing, vol. 11(2), pages 20-27, October.
    12. repec:taf:defpea:v:28:y:2017:i:6:p:719-730 is not listed on IDEAS
    13. Masoud Nili & Solmaz Moselhi, 2008. "The Role of Government Activities in Explaining the Growth Failure of the Oil Exporting Countries," Working Papers 398, Economic Research Forum, revised 03 Jan 2008.

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    Greece; Military expenditure; Economic effects;


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