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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
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    References listed on IDEAS

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    More about this item

    Keywords

    Guatemala; defense expenditures; nonlinearity; economic growth; externality effect;
    All these keywords.

    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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