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Military expenditure and economic growth: peru 1970-1996

  • Thilo Klein
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    The present study examines the effects of military expenditure on growth in Peru in the period from 1970 to 1996. By using a Deger-type Simultaneous Equations Model it is possible to break up the net effect into supply- and demand-side influences. The former consist of positive externalities of defence activities on the other sectors of the economy, while the latter can be described as crowding-out of civilian investment. Estimations find the supply-side effects to be insignificantly different from zero, while the crowding-out effect of defence spending is significant and substantial. It is thereby established that defence expenditure has a negative overall effect on economic growth in Peru. Although several caveats - including specification problems of the Deger model, the quality of the data used, a relatively small sample and the presence of autocorrelation in the estimations - must be considered, these results turn out to be quite robust with respect to estimation methods (3SLS, 2SLS, OLS) and slight modifications to the model. They are also consistent with previous empirical findings from other countries and cross sectional studies.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/102426903200035101
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    Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

    Volume (Year): 15 (2004)
    Issue (Month): 3 ()
    Pages: 275-288

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    Handle: RePEc:taf:defpea:v:15:y:2004:i:3:p:275-288
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    1. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
    2. Deger, Saadet & Sen, Somnath, 1983. "Military expenditure, spin-off and economic development," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 67-83.
    3. Paul Dunne & Eftychia Nikolaidou & Andre Roux, 2000. "Defence spending and economic growth in South Africa: A supply and demand model," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(4), pages 573-585.
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