Growth, political instability and the defense burden
The author develops and tests a model to examine the economic effects of political instability and military expenditure. Defense plays three important roles in the model: (1) it provides insurance against political instability; (2) it augments the human capital stock by training the labour force; but (3) it comes at the expense of consumption. The resulting theory predicts that increased political instability or increased defense can inhibit economic growth. Using panel data, the author finds that increases in political instability do decrease growth while increases in defense do decrease political instability. I also find that increases in defense have a direct negative effect on growth, although the relation is weak. Copyright 1996 by The London School of Economics and Political Science.
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