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Growth, political instability and the defense burden

  • S. Brock Blomberg

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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Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9420.

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Date of creation: 1994
Date of revision:
Handle: RePEc:fip:fednrp:9420
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  1. Skaperdas, S., 1990. "Conflict And Attitudes Toward Risk," Papers 90-91-05, California Irvine - School of Social Sciences.
  2. Faini, Riccardo & Annez, Patricia & Taylor, Lance, 1984. "Defense Spending, Economic Structure, and Growth: Evidence among Countries and Over Time," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 487-98, April.
  3. Smith, Ronald P., 1980. "Military expenditure and investment in OECD countries, 1954-1973," Journal of Comparative Economics, Elsevier, vol. 4(1), pages 19-32, March.
  4. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
  5. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  6. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  7. Smith, R P, 1980. "The Demand for Military Expenditure," Economic Journal, Royal Economic Society, vol. 90(363), pages 811-20, December.
  8. Kenneth Rogoff, 1987. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Deger, Saadet, 1986. "Economic Development and Defense Expenditure," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 179-96, October.
  11. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  12. Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Oxford University Press, vol. 1(1), pages 61-76, March.
  13. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  14. Smith, Ron P, 1978. "Military Expenditure and Capitalism: A Reply," Cambridge Journal of Economics, Oxford University Press, vol. 2(3), pages 299-304, September.
  15. Londregan, J. & Poole, K.T., 1991. "The Seizure of Executive Power and Economic Growth: Some Additional Evidence," GSIA Working Papers 1991-6, Carnegie Mellon University, Tepper School of Business.
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