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Arms Trade, Military Spending, And Economic Growth

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Listed author(s):
  • Pavel Yakovlev

Abstract

There is a large literature on the relationship between economic growth and defense spending, but its findings are often contradictory and inconclusive. These results may be partly due to non-linear growth effects of military expenditure and incorrect model specifications. The literature also appears lacking an empirical analysis of interaction between military spending and the arms trade and the impact of these two on growth. This paper investigates this non-linear interaction in the context of the Solow and Barro growth models recommended by Dunne et al.1 (2005). Using fixed effects, random effects, and Arellano-Bond GMM estimators, I examine the growth effects of military expenditure, arms trade, and their interaction in a balanced panel of 28 countries during 1965-2000. The augmented Solow growth model specified in Dunne et al. (2005) yields more robust estimates than the reformulated Barro model. I find that higher military spending and net arms exports separately lead to lower economic growth, but higher military spending is less detrimental to growth when a country is a net arms exporter.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/10242690601099679
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Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

Volume (Year): 18 (2007)
Issue (Month): 4 ()
Pages: 317-338

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Handle: RePEc:taf:defpea:v:18:y:2007:i:4:p:317-338
DOI: 10.1080/10242690601099679
Contact details of provider: Web page: http://www.tandfonline.com/GDPE20

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Keywords: Arms trade; Defense spending; Military expenditure; Economic growth;

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  1. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
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  14. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
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Cited by:

  1. repec:spr:qualqt:v:51:y:2017:i:4:d:10.1007_s11135-016-0368-4 is not listed on IDEAS
  2. Manamperi, Nimantha, 2016. "Does military expenditure hinder economic growth? Evidence from Greece and Turkey," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1171-1193.
  3. Alptekin, Aynur & Levine, Paul, 2012. "Military expenditure and economic growth: A meta-analysis," European Journal of Political Economy, Elsevier, vol. 28(4), pages 636-650.
  4. 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.
  5. Sefa Awaworyi & Siew Ling Yew, 2014. "The Effect of Military Expenditure on Growth: An Empirical Synthesis," Monash Economics Working Papers 25-14, Monash University, Department of Economics.
  6. Hee-Won Yang & Chan-Young Hong & Seong-Mun Jeong & Jeong-Dong Lee, 2012. "The military Expenditure and Economic Growth in the case of the South Korea : The dynamic Computational Equilibrium model in an Endogeneous Growth Perspective," EcoMod2012 4264, EcoMod.
  7. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2010. "Assessing the Effects of Military Expenditure on Growth," Working Papers 1012, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  8. Tetsuya, Saito, 2007. "Military Expenditures of Dictatorial Regimes: A Strategic Theory," MPRA Paper 6155, University Library of Munich, Germany.
  9. Hou Na & Chen Bo, 2014. "Military Spending and Economic Growth in An Augmented Solow Model: A Panel Data Investigation for OECD Countries," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(3), pages 1-15, August.
  10. Na Hou & Bo Chen, 2013. "Military Expenditure And Economic Growth In Developing Countries: Evidence From System Gmm Estimates," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(3), pages 183-193, June.
  11. Uk Heo & Min Ye, 2016. "Defense Spending and Economic Growth around the Globe: The Direct and Indirect Link," International Interactions, Taylor & Francis Journals, vol. 42(5), pages 774-796, October.
  12. Goodness C. Aye & Mehmet Balcilar & John P. Dunne & Rangan Gupta & Reneé van Eyden, 2014. "Military expenditure, economic growth and structural instability: a case study of South Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(6), pages 619-633, December.
  13. repec:gig:joupla:v:5:y:2013:i:2:p:71-103 is not listed on IDEAS
  14. Aristea Gkagka & Grigoris Zarotiadis, 2011. "Growth and EU Trade Relations: A Case Study," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 9(1), pages 1-11.
  15. Jomana Amara, 2008. "Nato Defense Expenditures: Common Goals Or Diverging Interests? A Structural Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(6), pages 449-469.
  16. Yang, Heewon & Hong, Chanyoung & Jung, Sungmoon & Lee, Jeong-Dong, 2015. "Arms or butter: The economic effect of an increase in military expenditure," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 596-615.
  17. repec:ldr:wpaper:95 is not listed on IDEAS
  18. Pavel Yakovlev, 2011. "The Economics of Torture," Chapters,in: The Handbook on the Political Economy of War, chapter 7 Edward Elgar Publishing.
  19. Ünal Töngür & Adem Yavuz Elveren, 2016. "The impact of military spending and income inequality on economic growth in Turkey," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(3), pages 433-452, June.
  20. Chen, Pei-Fen & Lee, Chien-Chiang & Chiu, Yi-Bin, 2014. "The nexus between defense expenditure and economic growth: New global evidence," Economic Modelling, Elsevier, vol. 36(C), pages 474-483.

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