Military Expenditure and Economic Development

Military expenditure is a significant share of central government expenditure and gross domestic product in many developing countries. It is often argued that military expenditure leads to reduced growth in developing countries by crowding out productive investment. This paper • considers the impact of military expenditure on economic growth in both deve oped and developing countries, using data from the US Arms Control and Disarmament Agency from 1973 to 19891 We find that the impact of military expenditure on economic growth depends upon the way in which it is financed. In OECD countries, military expenditure crowds out investment and provides a partial explanation for the relatively slow growth observed in those OECD countries carrying large defense burdens. In developing countries with low levels of political freedom, both military expenditure and gross domestic investment are financed out of reduced private consumption. Strong dictators appear to have the power to channel resources into both investment and military expenditure using means unavailable in weak dictatorships.