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Military spending and stochastic growth

  • Liutang Gong

    (School of Management, Peking University
    Institute for Advanced Study, Wuhan University)

  • Heng-fu Zou

    (School of Management, Peking University
    Institute for Advanced Study, Wuhan University
    Development Research Group, World Bank)

This study examines capital accumulation, military spending, arms accumulation, and output growth in a stochastic endogenous growth model. The analysis shows that higher (lower) growth in foreign military spending leads to faster (slower) economic growth in the home country if the home country¡¯s intertemporal substitution elasticity in consumption is smaller (larger); but more volatility in foreign military spending can lead to higher economic growth in the home country when its intertemporal substitution elasticity is large. In addition, shocks to output production may stimulate economic growth.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 57.

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Length: 18 pages
Date of creation: 2001
Date of revision:
Publication status: Published in Journal of Economic Dynamics & Control 28 (2003) 153 ¨C 170
Handle: RePEc:cuf:wpaper:57
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  28. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-81, November.
  29. Heng-Fu Zou, 1997. "Dynamic analysis in the Viner model of mercantilism," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 637-651, August.
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