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Modeling the Defense-Growth Nexus in a Post-Conflict Country - A Piecewise Linear Approach

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  • Gerhard Reitschuler

    ()

  • Ludger J. Löning

    ()

Abstract

The defense-growth nexus is investigated empirically using longitudinal data for Guatemala and allowing the effect of defense spending on growth to be nonlinear. Using recently developed econometric methods involving threshold regressions, evidence of a level-dependent effect of military expenditure on GDP growth is found: a positive and significant externality effect of defense spending prevails for relatively low levels of defense spending and becomes negative, albeit insignificant, for higher levels.

Suggested Citation

  • Gerhard Reitschuler & Ludger J. Löning, 2004. "Modeling the Defense-Growth Nexus in a Post-Conflict Country - A Piecewise Linear Approach," Ibero America Institute for Econ. Research (IAI) Discussion Papers 097, Ibero-America Institute for Economic Research.
  • Handle: RePEc:got:iaidps:097
    as

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    File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB97.pdf
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    References listed on IDEAS

    as
    1. Michael D. Stroup & Jac C. Heckelman, 2001. "Size Of The Military Sector And Economic Growth: A Panel Data Analysis Of Africa And Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 4, pages 329-360, November.
    2. Biswas, Basudeb & Ram, Rati, 1986. "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 361-372, January.
    3. Uk Heo, 1998. "Modeling the Defense-Growth Relationship around the Globe," Journal of Conflict Resolution, Peace Science Society (International), vol. 42(5), pages 637-657, October.
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    6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
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    8. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
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    13. Benoit, Emile, 1978. "Growth and Defense in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 26(2), pages 271-280, January.
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    16. repec:cup:apsrev:v:86:y:1992:i:03:p:748-755_09 is not listed on IDEAS
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    More about this item

    Keywords

    Guatemala; defense expenditures; nonlinearity; economic growth; externality effect;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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