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Defense Spending and Economic Growth:A Theoretical Manifestation for Empirical Studies

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  • Ý. Hakan Yetkiner

    () (Department of Economics, Izmir University of Economics)

Abstract

Defense literature is still in need of a theoretical framework in the neoclassical sense, in regard to empirical research on the relationship between defense spending and economic growth. In this respect, Dunne, Smith and Willenbockel (2005), although not without technical problems, represented a breakthrough in the field. In addition, the whole empirical literature following Mankiw, Romer and Weil (1992) is based on the unrealistic assumption that technological progress is identical across countries and constant in time. Recently, Bayraktar-Saglam and Yetkiner (2012) developed a theoretical framework that overcomes the unrealistic assumption of constant and identical rates of technological progress. In this paper, we achieve two things. First, we develop the true growth-defense model, based on Dunne, Smith and Willenbockel (2005). Second, we overcome the general weakness of constant and identical technological progress assumption in empirical growth studies by employing Bayraktar-Saglam and Yetkiner (2012) growth framework. We show that the intensity of defense spending in GDP has both positive and negative effects. In this respect, the theory supports the findings of the empirical literature, which are inconclusive in nature.

Suggested Citation

  • Ý. Hakan Yetkiner, 2012. "Defense Spending and Economic Growth:A Theoretical Manifestation for Empirical Studies," Working Papers 1202, Izmir University of Economics.
  • Handle: RePEc:izm:wpaper:1202
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    References listed on IDEAS

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    More about this item

    Keywords

    Military Expenditure; Defense Spending; Convergence; Economic Growth;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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